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Securitization industry success: a win for the little guy?

By David Bell
01 Jun 2017

The European securitization industry’s “simple, transparent and standardised” regulatory framework has finally been pushed through, with industry practitioners as well as supportive bureaucrats in Brussels saying it will help boost the flow of lending to Europe’s small and medium enterprises (SMEs). Time will tell if those businesses actually feel the benefit.

It has taken the best part of two years for securitization’s “simple, transparent and standardised” plan to get through the sausage factory — or “sausage party”, as one Dutch bank memorably referred to the law-making process this month — of European legislation. It has been hailed as a major step forward for the Capital Markets Union project.

A major push behind the framework during the drawn out negotiations was that it will help free up capital for banks to lend to Europe’s SMEs, an argument that seemed aimed at sceptical politicians.

Making it easier to securitize loans should, in theory, encourage banks to use that spare capacity to lend more — it’s a central principle behind the emergence of the tool.  But will banks use that freed up cash to lend more to Europe’s SMEs instead of other, more profitable pursuits? It’s far from clear.

Traditional banks are by far the biggest providers of credit to European SMEs, although plenty of businesses are still being left behind. A research report published last month by CYBG suggested that 35% of SMEs find accessing finance from banks a challenge, while 9% said accessing finance was either “very difficult” or “almost impossible”.

There are plenty of alternatives emerging. Lenders such as marketplace platforms are beginning to make waves in this market, while trade receivables financing, leasing finance and crowdfunding are also viable alternatives.

The securitization industry needs to prove that increased dealflow does, in fact, lead to more SME lending. But if the aim of the Capital Markets Union was to diversify Europe’s sources of funding away from bank lending, there are other important avenues to help develop.

By David Bell
01 Jun 2017