EU governments back measures to ease banking rules
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EU governments are close to backing measures that would ease safeguards on securitisation, a financial practice widely linked to the 2008 crisis. According to officials involved in the talks, Treasury representatives in the Council have already agreed to reduce the amount of capital banks must hold when investing in repackaged debt. Only a few technical points remain before the Council formalises its negotiating position, allowing talks with the European Parliament to begin next year.
Securitisation, the repackaging and resale of debt, enables banks to shift assets off their balance sheets and free up space for new lending. While the market rebounded strongly in the U.S. after the financial crisis, it has remained subdued in Europe, partly due to tougher post-crisis rules. The European Commission has sought to revive activity and in June proposed more flexible requirements for the sector, a move EU governments broadly support despite caution from regulators.
A central change concerns the “risk weight floor,” which helps determine the minimum capital banks must hold as a buffer when investing in securitised products. Before 2008, this floor stood at 7 percent; post-crisis reforms raised it to 10 or 15 percent depending on the level of risk. The Commission proposed a flexible approach with a minimum of 5 percent for the safest investments. Member states have now settled on a 6 percent floor, rejecting efforts by a group led by France to reduce it to as low as 2 to 3 percent.
The European Central Bank has warned against loosening safeguards too far, arguing that flexible floors risk allowing capital requirements to fall below pre-crisis levels.
