The European Union will loosen rules on selling securitised debt, said Michel Barnier, 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.
"There is the low-quality securitisation. We have seen that it has cost a lot of money, subprime and other examples," Barnier said. "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 of assets, while pension funds had €37 trillion. 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.
Investment banks from Wall Street and London, among others, have long argued that securitisation is one of the few ways to plug the gap left by banks retreating from lending. Barnier was introducing plans to unlock market-based financing and wean the European economy off its reliance on banks for funding growth and investment in companies and infrastructure.
There are other elements to Barnier's plan. Alongside easing the rules on what pension funds can invest in, Barnier will try to nurture new forms of finance, such as crowdfunding or online peer-to-peer lending. Such schemes, he hopes, can boost growth and help to create jobs. Addressing the issue of jobs and how fresh finance can create them will also help Brussels' image ahead of elections for the European Parliament in May. "The trigger for employment and growth is financing", said Barnier.
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