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London - The European Union will loosen rules on selling securitised debt, the bloc's regulatory chief said on Thursday, giving a second chance to products that triggered the worst financial crisis in a generation.
The capital rules that make it expensive for banks and insurers to create and buy such debt will be eased, said Michel Barnier, the European Commissioner in charge of regulation, dismissing any threat that such concessions would risk another "subprime disaster".
Packages of high-risk home loans, rebundled with credit-card and other debt and then stamped as creditworthy, caused billions of euros of losses for banks and triggered the financial crisis of recent years.
Roughly seven years later, the European economy remains in the doldrums, thanks in large part to banks' unwillingness to lend. Banks have historically accounted for two-thirds of corporate funding in Europe, double the level for US peers.
Now policymakers across the region are seeking new streams of credit for industry and believe that securitising or repackaging debt, such as loans to companies, could provide the answer.
"There is the low-quality securitisation. We have seen that it has cost a lot of money, subprime and other examples," Barnier told reporters. "But there is also good securitisation. We want to encourage good securitisation. We are not going to invite a new subprime disaster."
By loosening the rules requiring banks, insurers or pension funds to set aside large amounts of capital to cover risks from investment in securitised debt, Brussels hopes, in part, to tap the trillions of euros that Europeans have saved for retirement.
Barnier said that insurers had 84 trillion euros of assets, while pension funds had €37trn.
Too little of this money, he said, was invested in 'unlisted infrastructures', a reference to the small and medium-sized companies who would find it easier to borrow if it was possible to repackage and resell their debt.
The European Central Bank is also keen on re-starting securitisation.
European Union banks have shrunk loan books by over $5.5trn, more than a tenth, since the global crisis of 2007-08, choking off credit and forcing companies to find alternatives.
"Good securitisation would help us to re-launch financing, which many companies need," said Barnier.
