10/20/2025
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After a little break, the fight for European securitization’s soul was back in the spotlight last week.
On Monday, the EU’s ECON hearing acted as the sort of political starting gun as the Securitization Regulation reform proposals make their way through the EU’s infamously convoluted legislative process. However, the question, as ever, is what they will look like come the end of that process.
And while on the one hand, this opening gambit leaves us no closer to knowing the answer, it does provide clues. No decisions were made last Monday, but we can start to see where the battle lines are being drawn between the various Parliamentary “blocs” – who wants what, which issues are the biggest sticking points etc.
Four bodies were invited to speak at the hearing: Association for Financial Markets in Europe (AFME), Finance Watch, True-Sale International (TSI) and the European Systemic Risk Board (ESRB).
Below, you can see their relevant releases to read what they said here: AFME, Finance Watch, TSI, and ESRB.
As one might expect, AFME, TSI and the ESRB were broadly positive on the proposals, arguing that it would be good for the EU economy if the rules were “recalibrated” to better account for the risks that securitization presents and in the process, allowing the market to expand.
Whereas Finance Watch, the independent non-profit which, according to its website aims to “counterbalance” the “financial lobby”, was critical of the reforms, arguing that changes would bring no benefit to EU SMEs or grow the real economy.
What this shows is that the proposals are being argued on what you can conceptualize as classical political lines. Those on the right are happy for less regulation to help fuel the financial markets, while those on the left are suspicious of deregulation benefitting the world of finance and not, as the market participants claim, society at large.
I think it’s fair to say that anyone reading this structured finance newsletter is probably well-aware of the arguments in favour of reform.
So, for that reason, I will skip going over old ground and look at the arguments the market participants are perhaps less exposed to.
The main arguments from Finance Watch are reflective broadly of the concerns of the left-wing “blocs” in the EU Parliament. The attempt from the securitization industry so far has been to portray reform to the left wingers as the key to unlocking greater financing of SMEs, for green initiatives, and to reduce risk in the banking system.
But Finance Watch argue that securitization generally doesn’t involve SME lending, at least directly, or much green finance, and that there’s no guarantee that just because banks have freed up capital it will lead to them lending more to those sectors. They also don’t see how it can reduce risk in the banking system if the buyers of securitization are predominantly banks.
Overall, they are suspicious of banks just using the reforms as a way to boost their share price, and to do nothing for the greater good of the EU economy.
Some of the arguments are understandable. There’s no guarantee that because more securitization helps banks to free up capital, they will use it in the way the EU wants. But as my next guest on the yet-to-be-released podcast said to me in the recording this week, that’s
not really relevant to reforming securitization.
And when it comes to the buyers all being banks, well the reforms are in part designed to change that. Currently, the rules make it incredibly difficult to set up as an ABS investor, while insurers are effectively locked out of large portions of the market due to disproportionately penal Solvency II rules.
But it’s clear that the industry has some work to do to convince MEPs that these reforms do not represent the second coming of the 2008 crisis, and are not just another deregulatory land grab from the big banks.
The sense I get from contacts is still optimistic. But these are the sort of arguments that proponents of reform will have to overcome if there are to be meaningful changes, while showing the potential for green finance and other social goals will be key.
If you’re interested in more technical issues, you should also read the latest report from the brilliant team at Risk Control, called Making the Bank Securitisation Capital Rules Work for Europe, here.
I suppose last week in sterling was a good example of the exact problems those wanting reform are bemoaning. It was a slightly wobbly week with news of regional US banks in trouble hitting European stocks and bank stocks in particular.
And in the UK, broader concerns over the UK economy as a whole have made investors cautious. It’s not a full-blown crisis by any stretch, but it’s far from an ideal moment to be out in the market.
Yet this hiccup is made considerably worse due to the shallow investor base for ABS in the UK. And so, with a number of the trades last week being what you might call funky, arrangers had to be extremely careful.
Five sterling deals were priced, but only one managed to print inside its IPTs, such was the dearth of buyers.
That trade was Capital on Tap’s £500m London Cards Master Issuer, which came in 5bps from IPTs of 95bps to finish at 90bps over Sonia and 1.7x covered. Having priced on Wednesday, it may have got done just before investors had time to think again.
As for the others, well there are of course the aforementioned mitigating circumstances out of their control, while the collateral is a bit more niche. Nowhere is that more true than the Shariah compliant mortgages of StrideUp Homes Ltd.
Their debut deal was the £308m Meridian Funding 2025-1, a prime RMBS but clearly a rather unusual one. The attractive spreads further down the stack were locked in early as books went subject without any IPTs, while the AAAs were offered at 85bps, 35bps wide of the most recent prime RMBS, Lloyds’ Permanent.
However, with the little stock market wobble, any hopes of grinding tighter were dashed and StrideUp had to settle at 85bps over Sonia.
That’s all from me this week. I have discovered how to use the fireplace correctly (and safely), so I’ve decided to give up the golf and become a professional woodchopper.
Before I go, I would like to direct you to this great piece by ex-banker turned columnist, Craig Coben, writing in GlobalCapital about the balance of being a good father and a good earner. Really interesting read, and something a bit different. Click here to read.
Have a great week
Tom
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