Stability implications of the EU securitisation market
In line with the mandate given by Article 31 of the Securitisation Regulation, in July 2022, the European Systemic Risk Board (ESRB) published its first report on the financial stability implications of the EU’s traditional (off-balance sheet) securitisation market with the aim of highlighting financial stability risks.
The report sets forth the monitoring framework for macroprudential oversight of the EU securitisation market, focusing on EU residential mortgage-backed securities (RMBSs), which represent the largest segment of the EU securitisation market.
ESRB identifies three main macroprudential indicator groups for systemic risk
The ESRB´s securitisation market monitoring framework examines systemic risk and revolves around three group of indicators that the ESRB deems to be the most relevant from a macroprudential perspective:
- broad market indicators
- leverage indicators
- interconnectedness and concentration indicators
Key report findings
The ESRB report presents, amongst others, the following key findings:
- The EU securitisation market has shrunk since the global financial crisis of 2008
- The loan balance underlying EU RMBSs has fallen
- The levels of collateral behind the loans underlying EU RMBSs are high but the share of riskier loans has risen
- EU RMBSs include an important share of highly indebted borrowers with a debt-to-income (DTI) ratio above five
- Origination and holding of EU RMBSs are concentrated in a small number of banks domiciled in a few Member States
ESRB supports recommendations for the reporting of private securitisations through securitisation repositories
The report concludes that, while the ESRB does not see any substantial systemic risks arising from EU RMBSs, analysis of other asset classes or other types of securitisations not covered in the report could reveal sources of risk.
The ESRB further claims that the quality of EU securitisation reporting should be enhanced, and the monitoring framework broadened beyond RMBSs to ensure that emerging risks to financial stability are promptly identified. In particular, the ESRB supports the recommendations made by the Joint Committee of European Supervisory Authorities to the European Commission in its report of May 2021 as regards to the adoption of a narrower definition for private securitisations and the reporting of private securitisations through securitisation repositories.
The ESRB further claims that the quality of EU securitisation reporting should be enhanced, and the monitoring framework broadened beyond RMBSs to ensure that emerging risks to financial stability are promptly identified. In particular, the ESRB supports the recommendations made by the Joint Committee of European Supervisory Authorities to the European Commission in its report of May 2021 as regards to the adoption of a narrower definition for private securitisations and the reporting of private securitisations through securitisation repositories.
For the purposes of monitoring the RMBS market in the EU, the ESRB has relied on the data from the Centralised Securities Database, European DataWarehouse, and the Securities Holdings Statistics.