(Bloomberg) -- The European Union is in danger of striking an "unduly conservative compromise" on legislation meant to kick-start securitization, two of the bloc's biggest finance lobbies have warned as they urge politicians to walk-back proposed changes to the package.
In an open letter to the member states and EU Parliament lawmakers, the European Banking Federation and the Association for Financial Markets in Europe said the planned tweaks risk "curtailing the utility of securitization."
"As a result, banks will be unable to use securitization effectively to finance strategic EU priorities," argued the EBF and AFME, which represent Europe's top banks, asset managers, advisors and exchanges. "There is a serious risk that the European Commission's proposals, which laid important groundwork for effecting meaningful change, may end up having only very limited economic impact."
The warning came as government representatives meet today to try to thrash out a deal on the long-awaited reforms, a key step before the package goes to the European Parliament for a vote. The overhaul is designed to make it easier for banks to package their loans and sell on the risk.
The project has become emblematic of a broader package of reforms, now known as the Savings & Investment Union initiative, which aims to turbo-charge European growth by creating vibrant capital markets.
Securitization remains a politically fraught topic in some member states, where it is best known for fueling the great financial crisis, and the EU's Danish presidency has proposed a series of tweaks to corral agreement from member states.
AFME and the EBF said the proposed technical changes to the capital requirements for securitization would hurt large banks who wanted to use securitization for infrastructure, project finance and corporate loans. Mid-sized banks who want to transfer the risk from a "broad range of market segments" would also be adversely affected.
"We therefore urge co-legislators to ensure that a greater level of ambition is reached through improved calibrations to relevant aspects of the capital requirements for banks as detailed in our impact analysis," the letter concluded, stressing that such goals could be achieved "without compromising financial stability."
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