A major aspect of promoting the Capital Markets Union (CMU), whereby more financing is sourced from investors rather than banks, has been the push for a revival of securitisation (packaging of loans, sold to investors). In order to avoid dangerous aspects that appeared during the financial crisis, the EC suggested a legislative proposal for simple, transparent and standardised (STS) securitisation (September 2015).

Because the proposal still contains some risky parts, the European Parliament committee responsible for financial legislation (ECON) is still discussing amendments after a major difference of opinion among the political parties. Notwithstanding the European Commission pressing for a swift decision on STS securitisation and the development of the CMU in general, the ECON vote is not expected before late November or early December 2016 (to remain updated, see here).

One of the controversial aspects is how many risks the banks that issue STS securitised products should retain and how many capital buffers they should hold when engaging in securitisation. Low risk retention and low capital buffers for products labelled as STS securitisation could potentially distribute too much risks within the market. Finance Watch has organised a call for action on securitisation to prevent legislation that is too weak.