you're reading...
EU Financing / Budgetary Affairs, PUBLICATIONS

Understanding Securitisation: Background − benefits − risks

Written by Angelos Delivorias
Understanding Securitisation: Background − benefits − risks

© Brad Pict / Fotolia

Securitisation is a financing technique by which homogeneous income-generating assets − which on their own may be difficult to trade − are pooled and sold to a specially created third party, which uses them as collateral to issue securities and sell them in financial markets. This presents advantages to issuers (e.g. it allows them to reduce funding costs and increase their funding capacity while still satisfying regulatory capital requirements), investors and markets, and it may even have broader economic and social benefits. At the same time, securitisation can be a source of risk to the financial system. A case in point is how it amplified the recent financial crisis by contributing to lengthening the intermediation chain, by creating conditions which resulted in misaligned incentives and interests between participants in the securitisation chain, by increasing the reliance on mathematical models and on external risk assessments and, finally, by increasing both individual and systemic bank risks.

Nevertheless, although the European securitisation market grew significantly in the run up to the crisis, it has dramatically contracted since, despite the fact that most European securitised products fared well in the recent financial crisis in comparison with their US counterparts.

In the current low-growth and cautious lending environment, a simple form of securitisation was advocated by many, to equip banks with the necessary funds to provide new lending to the real economy. Thus, in the context of the creation of the Capital Markets Union, various stakeholders have published their reflections and launched consultations on what possible changes could be brought to the process of securitisation itself, in order to simplify it, render it less opaque and, as a result, reduce its potential risk.

Read this In-depth Analysis on Understanding Securitisation: Background − benefits − risks in PDF.


This slideshow requires JavaScript.


No comments yet.

Leave a Reply

Download the EPRS App

EPRS App on Google Play
EPRS App on App Store
What Europe Does For You
EU Legislation in Progress
Topical Digests
EPRS Podcasts

Follow Blog via Email

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 3,539 other subscribers

RSS Link to Members’ Research Service

Disclaimer and Copyright statement

The content of all documents (and articles) contained in this blog is the sole responsibility of the author and any opinions expressed therein do not necessarily represent the official position of the European Parliament. It is addressed to the Members and staff of the EP for their parliamentary work. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the European Parliament is given prior notice and sent a copy.

For a comprehensive description of our cookie and data protection policies, please visit Terms and Conditions page.

Copyright © European Union, 2014-2019. All rights reserved.

%d bloggers like this: