Join us for our upcoming #FBFDiscuss debate featuring Anne Schaedle (European Commission) as a proponent, and Daniela Gabor (UWE Bristol) as an opponent. They will discuss the role of securitisation in driving sustainability and transition objectives within the European Union (EU).

Since the American subprime mortgage crisis in 2007, stringent regulatory attention has focused on the securitisation market. Following the burst of the housing bubble, several major financial institutions defaulted in September 2008. A severe banking crisis followed, triggering instability in the global financial system in an unexplored and largely deregulated setting. As part of its reaction to the global financial crisis, the EU embarked on the mission to create a Capital Markets Union, whilst also implementing reforms to mitigate risks associated with securitisations. In parallel, the EU securitisation market experienced a contraction and remained at historically low levels since the crisis, in contrast to the US. While many factors could in principle contribute to this trend, market actors have often cited the existing EU regulatory framework as a significant barrier. Ongoing and upcoming policy measures have, however, the potential to increase the competitiveness and appetite for securitisations, such as the Banking Package, implementing the Basel III framework, or a potential review of the Securitisation Regulation in the 2024-2029 legislative mandate.

Market actors resort to securitisation for several purposes, like managing the risks within their portfolios, obtaining liquidity and widening the investor base. Securitisation, however, could also in principle serve as an accelerator of sustainability goals. Especially since the 2010s, market actors have increasingly labelled securitisation transactions as green or ‘ sustainability-linked , particularly when using the finance raised from the issuance to implement sustainability-related projects or when including ‘green’ assets within the portfolio. However, relying on securitisation for sustainability goals entails manifold costs and risks, including greenwashing concerns.

EU sustainable finance initiatives, like the recently approved Green Bond Standard, have partially regulated green securitisations. The European Supervisory Authorities have also recommended increasing transparency on the environmental and social risks of securitisation portfolio assets. Yet, the question remains as to whether all these initiatives will suffice to boost the EU ‘sustainable securitisation’ market.

Given market dynamics and regulatory requirements, is securitisation the adequate instrument to propel the green transition in the EU? Are there (public) alternatives to securitisation, including a tighter application of brown/green taxonomies? Could a reform of the framework provide the right incentives, checks and balances?

Debate motion: This House believes that the EU securitisation market can support the transition to a sustainable European economy.

Proponent: Anne Schaedle, European Commission, Head of Unit at DG FISMA A.1 Policy Definition and Coordination.

Opponent: Daniela Gabor, Professor of Economics and Macro-Finance, University of the West of England, Bristol

Moderator: Federica Agostini, Research Associate at the Florence School of Banking and Finance.