The EU must recognize that it can support securitisation growth while maintaining financial stability," Christian Noyer, Honary Governor, Banque de France.1
The changes coming to Europe’s economic and political landscape are emerging at historically unprecedented speeds. With Germany’s fiscal expansion and U.S. tariff effects framing the backdrop, the latest Eurofi conference in Warsaw, Poland assumed particular gravitas considering the ongoing calls for deeper integration amidst the region’s evolving existential risks.
Europe’s Savings and Investment Union (SIU) and the role of a revived securitisation market comprise a focal point of this integration. We provided the European Commission (EC) with our recommendations for rebuilding the European securitisation market in late 2024, and our participation in the Eurofi conference presents an opportunity to provide an update on those efforts (please see Reviving European Securitisation: Translating Ambition into Reality for additional details).2
The State of Play
We came away from Eurofi feeling positive that most European policymakers are keen to address the issues that we raised in our submission to the EC. However, some nuances surfaced during the conference regarding the various ways policymakers are thinking about the most pertinent topics.
Prudential Capital Treatment
Easing capital requirements, especially for insurance investors under the Solvency II framework, is by far the most disputed policy proposal under consideration. Some regulators, particularly the insurance and pension regulator EIOPA, believe that securitised assets pose a mismatch for life insurance liabilities.3 These entities also express the belief that the asset class is too complex and that, as a result, life insurers lack the appropriate risk management expertise.
"Unlike simpler fixed-income products, securitisation requires specialised expertise, increasing management costs and perceived risks – especially for insurers lacking in-house expertise,” EIOPA’s chairperson recently wrote.4
However, the global securitised market consists of multiple asset classes with varying durations to the point where they comprise about 20% of U.S. insurance assets, according to the NAIC. Therefore, we continue to assert that European insurers’ under-allocations to securitised products is largely a function of the substantial capital reserves associated with these assets.
At this point, the majority of EU government officials appear to recognise that Europe is not facing a financial stability crisis, but is instead facing a growth crisis complicated by fiscal expansion, tariffs, and war. Most ministry of finance officials we engaged with were supportive of the EC’s work to introduce greater risk-sensitivity to capital requirements. The EC confirmed that it will revisit prudential capital under Solvency II and Basel as it prepares to release a draft of its revised regulations in June 2025 - presenting a historically accelerated timeframe considering the EC's initial comment period closed late last year. However, it remains to be seen how ambitious these proposals will be.
Due Diligence and Transparency
While equally important, the political push to rationalize very complex and detailed due diligence and transparency requirements under the EUSR is a less contentious issue. Most finance ministry officials and supervisors recognise that there is ample scope to reduce red tape. There is also growing recognition that asset managers are already required to carry out due diligence for all of the assets they intend to invest in under existing regulatory frameworks (e.g., UCITS for mutual funds or AIFMD for alternative funds).
"Policymakers should consider introducing a principles-based investor due diligence framework which would allow the end-investor to judge whether a given securitisation meets their needs,” wrote Edwin Wilches, CFA, Co-Head, Securitized Products, in Eurofi’s accompanying publication.5
Therefore, singling out securitisation for additional due diligence may be duplicative. Many policymakers we met with expressed support for taking a “principles-based” approach to regulating due diligence. Likewise, policymakers note that the detailed, loan-level reporting that issuers must comply with under the EUSR is too detailed and could be pared back.
Securitisation Platform
While reforming capital requirements, due diligence, and transparency represent policymakers' short-term priorities, there is also growing support for a medium-term policy proposal of creating a securitisation platform, which was first proposed by the French Ministry of Finance under the 2024 Noyer Report and was again referenced during the conference.
"This platform could benefit from a public guarantee on senior low-risk tranches, which would increase investor confidence and help mobilising private capital,” noted Christian Noyer, Honorary Governor, Banque de France, recently.6
While details remain limited, the broader thinking is to take inspiration from the U.S., Canada, and Japan to standardise issuance processes, thus reducing costs. French policymakers see an opportunity to scale up financing for SME loan securitisation and support green securitisation through such a platform. Member States disagree on whether there should be a public backstop similar to the U.S. model for Fannie Mae.
Where to From Here
As we look ahead, PGIM remains committed to assisting European policy makers to update regulations that will preserve financial stability while reducing unnecessary frictions targeted at securitisations. These updates should allow the securitisation market to play an important role in credit formation to support EU economic growth and GDP expansion across member states.
Indeed, Europe’s over-reliance on bank financing relative to the rest of the world has not only contributed to the region’s tepid growth, but it has also constrained Europe’s banking sector as its share of global market capitalisation has been halved in recent years (Figure 1). To that end, if Europe’s securitised market were revived to issuance levels that matched its pre-financial crisis levels, it is estimated to generate an additional €250-500 billion in private financing per year that would also reduce some of the constraints on European bank balance sheets.7
Figure 1
The Declining Global Market Capitalisation of Europe’s Banks (%)
Source: Eurofi Macroeconomic Scoreboard, April 2025, and PGIM Fixed Income. Share of market capitalisation is based on banks in the world.
As for next steps, EC officials are set to publish a revived regulatory proposal in June. These officials are carefully listening to the ongoing policy debate knowing their proposals must be assessed, discussed, and amended by both the Council (EU Member State governments) and the European Parliament before a final compromise becomes law. The revised EUSR will be one of the first, large legislative packages to come out under the EU’s 2024-2029 strategic agenda and among the first actions under the new Savings and Investment Union (SIU) initiative aimed to boost financial opportunities for EU citizens and businesses.
The Commission will want to show that it is taking its competitiveness and growth mandate seriously and to prove that it is serious about making EU laws less detailed and onerous. At the same time, the Commission will want to propose a package that does not get bogged down by months or years of delay from political negotiations with those Members of the European Parliament (MEPs) that may be more sceptical of the benefits of securitisation. As of now, we remain cautiously optimistic that that the European Commission will produce an ambitious proposal with economic growth in mind.
1 The Eurofi Views Magazine, April 2025, page 235.
2 PGIM held more than 20 meetings with approximately 40 policymakers during the Eurofi conference. In addition, please see “Reviving European Securitisation—Time for Take Off,” by Edwin Wilches, CFA, Co-Head of Securitized Products, on page 241 of the Eurofi Views Magazine. https://www.eurofi.net/wp-content/uploads/2025/03/eurofi-views-warsaw-2…
3 EIOPA refers to European Insurance and Occupational Pensions Authority.
4 The Eurofi Views Magazine, April 2025, page 236.
5 Op. Cit., Wilches, pg. 241.
6 Op. Cit., Noyer, pg. 235.
7 Op. Cit., pg. 64.
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