Gerd-Jan van Wiggen: Is this the moment for European securitisation?
By Gerd-Jan van Wiggen, Sector Lead Banking, Yusi Wang, Senior Risk Management Consultant, and Fabiana Liu, Quantitative Consultant, all of them at Probability & Partners
The European securitisation market has shown an upward trend, with issuance rising by 14.8% year-on-year in full-year 2024, from €213.3 billion to €244.9 billion[1]. However, this growth remains much slower compared to other major jurisdictions following the 2008 crisis.
One of the main concerns is that EU regulations are too restrictive, limiting appetite from both the investor and originator perspectives. As Mario Draghi emphasized in the report on the future of European competitiveness, one of the key recommendations is to increase the financing capacity of the financial sector by reviving the securitisation market.
To create more financing capacity in the financial sector, the securitisation market can play a bigger role by unlocking additional lending. However, the current securitisation framework has faced criticism from the industry, as reflected in the recent targeted consultation conducted by the European Commission. Several areas for potential improvement have been highlighted, including the scope of application, due diligence requirements, and the treatment of capital and liquidity risk for banks and insurers. On 17 June 2025, the European Commission published legislative proposals to amend the Securitisation Regulation, the Capital Requirements Regulation (CRR), and the Liquidity Coverage Ratio (LCR) in response to industry feedback and to ultimately boost the EU securitisation market.
Banks as investors
Banks invest in securitisation primarily for liquidity purposes and should hold capital against such positions. From a capital perspective, respondents from the banking sector have called for reductions in two key parameters used in capital calculations: the p-factor, a parameter applied in the calculation of risk weight, and the risk weight floors, which set the minimum risk weights for senior tranches. In the current framework, the p-factor ensures that the capital charge for the securitisation position is higher than what would be required for underlying non-securitised exposure.
Although CRR3 introduced a transitional measure to reduce the p-factor by 50% until the end of 2032 under the standardized approach for output calculation purposes, the industry is calling for a more comprehensive reform. Specifically, they argue that the p-factor should be reduced further and the value should better reflect the actual risks of the product, meaning that investors in senior positions and STS positions shall benefit from a reduced p-factor.
In response to industry feedback, the European Commission has proposed changes to the two key elements in the CRR by lowering the risk weight floor and the p-factor for senior tranches.
Banks as originators
A more significant increase of the financing capacity, as recommended by Mario Draghi, can be achieved by originating a much higher volume of significant risk transfer (SRT) transactions.
CRR3 leads to higher capital impacts on certain portfolios (such as corporate, real estate exposures) on the balance sheet of banks. This appears to make securitisation an attractive option for mitigating the capital increase from an originator’s perspective. Banks are showing a growing appetite to offload low-default portfolios in the form of issuing transitional securitisation or synthetic transactions.
For example, in April 2025, a synthetic securitisation transaction was agreed and finalized between ABN AMRO and the European Investment Bank (EIB) Group, covering a portfolio of € 1 billion of existing loans to Dutch SMEs and corporates originated by ABN. This transaction allows ABN to free up approximately € 650 million in risk-weighted assets (RWA). As a result of this transaction, ABN AMRO is allowed to provide extra lending of € 1.2 billion to SMEs.
Insurance companies as investors
Criticism has also been raised in the insurance sector. The capital requirements are set out in Solvency II, and the methodology differs from that used for banking. The main concern is that the current rules are disproportionate to actual risks. Capital charges imposed on securitisation exposures are observed to be higher than those for products with similar credit quality, such as corporate bonds. While the industry has shown growing interest in investing in securitisation, the capital rules have limited the growth of investor appetite among insurers. The industry has raised this concern and advocates for reforms that would reduce capital requirements and introduce a more risk-based approach that distinguishes between different types of non-STS tranches.
Trends in EU securitisation markets
The European Commission's review of the existing framework appears to send a positive signal to the EU market, which has been constrained by a conservative regulatory approach aimed at preventing another 2008 crisis. Meanwhile, the U.S. market has recovered and grown more rapidly than what we have observed in the EU.
Will securitisation make a comeback in the EU? There are many dependencies. A revision of the regulatory framework is needed, not merely to reduce capital requirements, but to fairly reflect the actual risks. This would allow the system to take on more risk without compromising financial stability. The knowledge and practical experience that were lost after the 2008 crisis need to be rebuilt for many market participants, whether they are originators or investors.
It is a challenging time for large EU financial institutions to maintain their global competitiveness due to the uncertainty of the global regulatory landscape. We can only hope that the securitisation market will soon experience a long-awaited renaissance.
[1] AFME Securitisation Data Snapshot Q4 2024 and 2024 Full Year
