Since then, the market of packaging different loans into products to sell to investors has weakened, made so costly by post-crisis rules that outstanding debt has almost halved from the 2009 peak of €2.3 trillion ($2.7 trillion).
Now, it’s being cast as a potential hero for a troubled Europe facing trade tariffs, increased defense spending needs and bloated budget deficits.
“Europe needs growth — and growth needs investment,” the European Union’s finance chief, Maria Luis Albuquerque, told Bloomberg. “To mobilize capital at scale, we must use every tool available.”
The pitch is cheaper funding for lenders, which could cut borrowing costs for industry and consumers, broader investment opportunities for insurers, as well as more income for advisors and traders who’ll keep the market flowing once it takes off.
Loss of Trust
It’s a tough sell in some quarters. The market for pooling loans boomed before the 2008 financial crisis, but alongside that came a sharp drop in quality control. When the house of cards came down, the results were massive losses, economic turmoil and a collapse of trust in the system.
In June, the European Commission unveiled proposals to make it cheaper for banks to issue securitizations, both in terms of the cost to balance sheets and the paperwork involved. It’s also looking at easing regulations for insurers who want to invest. Europe hasn’t set out any market growth targets for its reforms, but some investors have predicted trillions of euros of investment could be unlocked.
“With better rules, we can make Europe’s securitization market a driver of prosperity — not complexity,” Albuquerque said last week.
BloombergSlow Progress
The Brussels finance lobbying community – and their bosses in London, Paris, Frankfurt and New York – went into 2025 with high hopes of an imminent watershed moment, several industry insiders and officials told Bloomberg News.
But despite the commission’s push, the redemption story has further to go. Securitization still needs to win over politicians and navigate a complex path to legislation. That means many months of intense lobbying and horse-trading.
“We’re really just firing the starting gun,” said Shaun Baddeley, managing director of securitization at finance lobby group AFME. “A lot can change between the commission’s proposal and the end game.”
Markus Ferber, a European Parliament member for Germany attached to the center-right European People’s Party, says some lawmakers, particularly on the left, remain skeptical of the asset class.
“The file will be quite controversial in the parliament,” he said. “That will certainly make finding a compromise difficult, so I doubt it will be a swift procedure.”
Aurore Lalucq, chair of the parliament’s Economic and Monetary Affairs Committee, who sits with the Progressive Alliance of Socialists and Democrats group, has already voiced her opposition.
Better Finance, which represents private investors and savers, has also come out against it, saying it’s a “gamble on financial stability.”
Finance Push
For the finance industry, securitization is just one element in a wider push to get Brussels to loosen the reins, arguments that are amplified by complaints about US banks having an unfair advantage because of EU regulation. While the European securitizations market declined sharply after the financial crisis, the US market grew from $11.3 trillion in 2008 to $13.7 trillion at the end of 2023.
Banks want it “to reduce their balance sheet, and capital charges,” said Karel Lannoo, head of European policy think tank CEPS. He added that the industry is less enthusiastic about aspects of the EU’s capital markets push which could curtail inducements or limit fees.
Industry insiders and watchers agree that the commission package is by far the EU’s meatiest attempt to address structural issues in the market. And reports of impending changes for insurers are also seen as broadly positive.
But there’s disappointment too about what some see as missed opportunities.
Banks are concerned the measures don’t do enough to incentivize them to hold other lenders’ securitizations on their balance sheets, something they must do in their role as market makers who buy and sell securities, ensuring liquidity.
AFME, which represents a wider cross section of finance, has criticized several aspects of the plans, including “disproportionate penalties” for investors who fall foul of due diligence requirements.
While lobbyists will be pushing for improvements, regulatory opposition may pull things in the opposite direction.
Insurance Money
Insurers are seen as a critical source of demand for securitizations, since they have the financial firepower to buy big. Their overseer, EIOPA, remains skeptical about any reforms that would cut the capital requirements for insurers holding the asset class.
Patrick Hoedjes, head of EIOPA’s Policy and Supervisory Convergence Department, told Europe’s finance committee last month that the regulator would have a “strong concern” about any attempts to change requirements.
Another question is whether insurers even want the assets. An EIOPA official told Bloomberg News insurers would be more keen to buy assets with longer duration, to match their liabilities.
Linking securitization to Europe’s economic revival will be critical to the Brussels debate.
The idea that insurers may not even want to buy the assets, and that other initiatives are more important, will make the zero-to-hero narrative harder to sell. Some policy makers argue the true status is somewhere in between.
“Securitization is not a silver bullet, but it can play a role in supporting Europe’s economic development,” said Verena Ross, chair of Europe’s markets supervisor ESMA. “When used appropriately and maintaining a focus on investor protection, it can help to share risk between banks and other actors in the capital markets.”