The European securitization market is set for another record year, with the highest issuance volumes since the global financial crisis in 2008, but not everything is as rosy as it appears at first glance.
In 2025, there has been both the highest placed volumes for cash securitizations since 2007, with about €160bn expected by the end of the year, according to Bank of America, and the lowest retained volumes since 2007 at €50bn.
All this momentum makes it look like the market is thriving under its regulatory regime, so it is only natural to question why so many in the market are raising concerns that the European Commission’s regulatory proposals will not do enough to boost issuance.
But delving a little further into the numbers reveals the folly of assuming securitization is in rude health on headline figures alone.
First, gross issuance is only one way of looking at things. The number does not adjust for inflation or GDP growth, so it is to be expected that it would creep up over time. Indeed, GlobalCapital reported earlier this year on how the benchmark size for a European CLO deal is growing, partly as a result of inflation.
Gross issuance also does not take account of how much of it is merely refinancing existing paper. Figures from the Association for Financial Markets in Europe (Afme) to the end of September across all asset classes including CLOs, show total outstandings stood at €1.27tr, up from €1.189tr a year before, an increase of just €62bn or around 5%.
In the CLO market specifically – the most active sector this year – there has been €64.5bn of resets and refinancings, outstripping the €57.4bn of new issuance, according to KopenTech data, although BofA does not include resets and refis in its number.
When you take all of that into account, the growth of the market is clear, but the numbers begin to look less impressive. That is particularly the case when you consider that this also all comes in the context of two significant tailwinds for European securitization issuance.
The first is on the bank funding side. Central bank liquidity schemes have now nearly rolled off, meaning banks should be looking at diversifying thsir funding options in markets like RMBS.
On the capital side of the balance sheet, banks have been squeezed, although there are early signs that trend could be starting to reverse. The result of the capital squeeze has been banks pulling back or looking at options to hedge their risk.
Both are good for securitization issuance. The former opens the door to securitization funded specialist lenders, while the latter often means securitizations issued directly from a bank's balance sheets.
Tailwind drops
Considering the funding side first, the impact of the central bank pull-back on the securitization market has been underwhelming.
RMBS volumes were lower this year than many expected, with many banks continuing to prioritise the use of covered bonds for funding mortgage books, while unexpectedly strong deposit growth hasn’t helped. Indeed, UK RMBS was down by 19% year on year according to S&P.
Take Nationwide as an example. The building society retained a three tranche £1.5bn RMBS at the end of last year for its 'stock and drop' issuance tactic, but has only sold one tranche so far. Excluding gains from the acquisition of Virgin Money, Nationwide grew its deposit base by a record £14bn according to its 2025 annual report covering the year from April 2024 to the end of March this year.
Notably, across Europe the slump in retained securitization volumes has not translated into a big rise in paper placed with investors.
This is due to covered bonds receiving better regulatory treatment than RMBS, with banks being able to hold a greater amount of the former, due to how they are treated under the Liquidity Coverage Ratio.
It is one thing for the High Street banks with low yielding prime mortgages to hold back on RMBS issuance, but when Paragon Bank is turning to covered bonds to finance its buy-to-let mortgages, you know you’ve got an uneven playing field.
Indeed, the post-crisis covered bond story represents a stark difference to RMBS, with global issuance tripling since 2007 and €3tr of issuance at the end of 2024. European covered bond issuance has risen steeply since the crisis, replacing RMBS programmes.
Failing to capitalise
The bank capital side of the equation is a little more exciting. The significant risk transfer (SRT) market has been active again in 2025, while some of the biggest banks in Europe have been making use of the cash securitization market to shift the risk of portfolios off their books.
Some big beasts have made their first forays into both markets, while smaller UK banks have also been selling mortgage portfolios.
Yet even here, there is unexploited potential. The calibration of risk-weight floors, which set a minimum risk-weighting on a retained securitization tranche, mean there is no efficient way for banks to recycle capital from some assets, most significantly their prime mortgage books.
The best option is a portfolio sale, with the most recent example being Metro Bank’s 2024 decision to sell its book to NatWest. The buyer pool is limited essentially to competitors, which means a bank would likely only turn to the market because of, as in Metro’s case, a change in strategy, or out of desperation.
NatWest itself makes an interesting example of how banks are looking to get capital out of their mortgage books. It recently securitized its residential mortgage book for the first time in a £2.5bn deal called Antler Mortgage Funding 1.
The mortgages in the deal were relatively recently originated, with a weighted average seasoning of 3.7 years, but certainly not prime. Loans more than three payments in arrears were 21% of the pool, according to Fitch.
Those sorts of deteriorating loans can drag heavily on returns to bank capital, so dealing with them first is a higher priority for banks than trying to add some capital velocity to performing mortgage books.
There are certainly some big and interesting trades being done to manage bank capital, but they normally go only to the small club of big investors who can do size and often buy to hold. The result is they don’t add that much to the quantity of investable paper for those outside of that group.
If more vanilla asset classes were allowed through the door, there could be a more efficient market, with more deals and more participants.
Whether or not that is the ambition of politicians and regulators in Europe, it would be a mistake to simply look at the headline figures and assume rising issuance means securitization is thriving.