June 8, 2015 / 11:43 AM / 2 years ago

EU to propose lighter capital rules for banks to revive securitised debt

LONDON/BRUSSELS, June 8 (Reuters) - The European Commission will propose lighter capital requirements on simple pooled debt instruments, in a bid to free banks to use these so-called securitisation products to help raise more funds to finance economic growth.

Regulators imposed tough capital requirements on banks creating securitised debt after often-complex products based on U.S. home loans became untradable in 2007, triggering the global financial crisis, and the sector in Europe has yet to regain pre-crisis levels.

But this freeze on the sector prevents banks from using these products to free up their balance sheets and make the fresh loans that business needs.

European financial services commissioner Jonathan Hill said on Monday securitised debt must be simple to benefit from lighter treatment.

“This will enable us to put in place more appropriate capital and solvency requirements for investors, so that simple securitisation products do not end up being penalised,” Hill told a public hearing in Brussels.

Current capital rules are based on global norms and Hill was signalling that the EU was ready to go its own way.

The draft law will be part of the EU’s Capital Markets Union (CMU) project to help companies better tap markets for funds. A public consultation has just ended and Hill was outlining actions he will formally publish in September.

He wants insurers to invest in telecom networks, roads and other types of infrastructure and will amend the bloc’s new insurance capital rules, known as Solvency II, to include investments in new EU infrastructure funds known as ELTIFs.

He would also take a radical look at easing the burden of listing rules for smaller companies.

The bloc’s venture capital rules will be reviewed to allow a wider range of funds and possible investments.

Critics say more harmonised tax and insolvency laws are needed for the CMU to work but past attempts failed due to the sensitivity and need for unanimity among the bloc’s members.

European Central Bank Vice President Vitor Constancio said if progress in these areas proved difficult, euro zone countries could go it alone.

“If there are areas where full agreement among the 28 is not possible, then the countries participating in the monetary union could consider enhanced cooperation to go further in those aspects where a broader agreement is not feasible,” Constancio told reporters. (Editing by David Holmes)

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