Within Europe in 2008, over 710 billion euros worth of bonds backed by anything from credit-card to auto loans were issued. By 2012 this figure had significantly reduced to a meagre 250 billion euros. This is according to data which was sourced by the Association of Financial Markets in Europe, which also shows the United States’ issuance fell from 2.9 trillion euros in 2003 to 1.5 trillion.Improving the regulation of a volatile financial product:Regulators today believe that an increased use of securitisations in the period leading up to 2008 played a large part in the financial crisis, due to the over-inflated value of these instruments, which were at the time based on residential mortgage debts.
By placing strict regulations on these high-risk financial products, it is hoped that there will be a revival in the market for securitisations, thus allowing banks to increase their lending and create an increased opportunity for businesses to receiving financing.
Indeed, there has been a demand from both global banks and businesses such as car manufacturers for tighter regulations that will encourage the future use of securitizations. Companies such as BMW and Volkswagen have voiced their desire for lenders to be handed the option of including asset-backed securities, which are based on car loans, in the new liquidity rule which was set by the Basel Committee on Banking Supervision.
Easing the rules on pension funds:
Banks have also been making requests to the Basel Group, which is made up of regulators from 27 different nations including the US, UK, and China, to reduce the required amount of capital needed to cover losses of purchased securitised debt.
Barnier’s plan regarding the regulation of financial products such as securitisations, has been designed to give a long-term boost to corporate financing, and includes tighter regulations on bonds, crowd-funding websites, and occupational pension funds.
Boosting the infrastructure spending is another important aspect of EU’s plans to improve the economy, as the investment which is required for infrastructure networks such as transportation, telecoms, and energy are estimated at 1 trillion euros for the period leading up to 2020. In order to help fund these developments, discussions for a new savings account are underway. This savings account would be contributed to by the 28 nation bloc and could be used to finance future projects.