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LONDON (Reuters) - The European Union has agreed on new rules to revive the securitised debt market, which was tarnished by the financial crisis, as part of a drive to build a deeper European capital market, EU officials and lawmakers said on Wednesday.
The bloc agreed a deal on "simple, transparent and standardised" (STS) forms of securitisation - assets like home loans bundled into tradable securities that can be sold to retail investors to raise funds that can be lent to companies.
Banks would be encouraged to offer these forms of securitised debt because they would not have to hold so much capital against them.
Europe's securitisation sector shrank after securitised debt based on poor quality U.S. home loans turned toxic in 2007, sowing the seeds of the global financial crisis.
The new rules are stricter on the quality of assets that can be securitised, and introduce tougher scrutiny by regulators.
"This is a cornerstone proposal in our attempt to build a financial system that improves financing of the real economy," European Commission Vice President Valdis Dombrovskis told a news conference in Brussels.
The Commission first proposed the new rules in September 2015, but they became bogged down in arguments over whether a market that burned investors and forced taxpayers to bail out banks should be revived.
"This shows we are able to learn lessons from the economic crisis and move closer to our objective of creating a capital markets union," said Othmar Karas, an Austrian centre-right member of the European Parliament.
"Our aim was try to breathe new life into that market and not to abolish securitisation. We have changed poison into medicine."
An impasse was broken when a deal emerged on Tuesday evening between EU states and the European Parliament. The STS rules come into effect in July 2018.
"While important details remain to be finalised, we are confident that the long-term impact of the STS framework will be positive," Simon Lewis, chief executive of the Association for Financial Markets in Europe, a banking industry body, said.
The EU's drive for a capital markets union (CMU) got another boost on Tuesday evening when a proposal to make it easier for venture capital funds to invest in EU start-ups was also agreed.
The Commission originally envisaged the CMU as a way to diversify sources of funding and eliminate cross-border barriers to investment, unlocking capital that could be channelled to companies and infrastructure projects to spur growth.
The expected departure from the EU of Britain, the bloc's biggest financial market, in 2019 is forcing the Commission to rethink its CMU project as an alternative to the City of London.
Dombrovskis is due to announce a raft of new measures on June 8 to relaunch a "CMU 2.0".
Reporting by Huw Jones; Editing by Adrian Croft