Securitisation is a structured finance tool that enables financial institutions to sell cash-generating assets (such as SME loans) on their balance-sheets to entities created especially for this purpose. These entities can then issue securities backed by the cashflows of the original asset (asset-backed securities) and sell these to investors. Until 2007, this practice was seen by SME stakeholders as a promising method of financing and risk transfer, with the potential to substantially reduce the cost of capital associated with SME lending and increase the supply of funds.
The financial crisis changed everything. Securitisation earned itself a bad name in policy circles, as the originate-to-distribute model was perceived to be vulnerable to lax lending standards and informational opacity, which led to a loss of liquidity from the wholesale markets. Although failures were largely concentrated in the US sub-prime mortgage and CDO markets, the relatively new practice of SME loan securitisation was also seen as tarnished by association with these sectors, despite European assets performing very well from a credit and secondary market standpoint. This, added to a number of structural challenges, such as the heterogeneous nature of SME loans and the limited liquidity for SME loan-backed securities, made the securitisation of SME loans nearly impossible – and it was difficult enough in the best of times.
Now, as the European economy struggles to find its feet, the sovereign debt crisis and the implementation of CRDIV (Capital Requirements Directive IV) are forcing banks to ration their capital in a way that is not always supportive of economic recovery in the medium-term. Securitisation of high quality assets is thus regaining attractiveness as a part of a new business model for banks, which could be part of the solution for SMEs’ funding shortfall.
The evidence shows that European securitisations have performed very well, in both credit and pricing terms, in recent years. While of course the lessons of the financial crisis are important, member states need to build on this evidence to ensure that their regulatory frameworks do not hinder the development of an SME loan securitisation market, and prioritise the right tools – including public support - to build a sustainable, liquid market in Europe. In this vein, the European Commission’s Action Plan on access to finance includes a commitment to ‘consider how to promote access to SME bond markets and securitisation,’ while the EIF (European Investment Fund) and the OECD (Organisation for Economic Co-operation and Development) have also called on policymakers to support this move. Much has already been done by the financial industry to rebuild trust in securitisation and engaging in dialogue and awareness-raising efforts to better explain to SMEs and their advisers the benefits of securitisation. The recent industry introduction of the PCS securitisation label, which includes SME loans, is an important part of this process.
Othmar Karas, MEP, Vice-President of the European Parliament, is therefore happy to invite you to an informed experts’ roundtable jointly organised by UEAPME, AFME (Association for Financial Markets in Europe) and ACCA (the Association of Chartered Certified Accountants), to discuss how to ensure a careful revival of SME loan securitisation, building on the recent promising developments in this market.
RSVP by 28 March to firstname.lastname@example.org (late registration will not be accepted, the security rules of the European Parliament are strict).
If you do not have a permanent pass for the European Parliament, please indicate your:
- Full name and first name
- Date of birth
- Passport or ID number
6pm: Welcome speech by Othmar Karas, MEP
6.15pm: Roundtable moderated by Corien Wortmann-Kool, MEP
- Alessandro Tappi, Head of Guarantees & Securitisation, European Investment Fund
- Richard Hopkin, Managing Director in the Securitisation Division, AFME
- Gerhard Huemer, Director Economy Policy, UEAPME
- Emmanouil Schizas, Senior Economic Analyst, ACCA
- Vilmos Budavari, Unit SME access to finance, DG Enterprise and Industry
7.50pm: Concluding remarks, Corien Wortmann-Kool, MEP
8pm: Cocktail reception