Brussels accused of damaging EU competitiveness by bloc's own banks

The European Commission is facing a fresh row with the bloc’s banking industry after a raft of financial trade bodies warned that competitiveness is being seriously harmed by the failure to drive through post-Brexit reform.

In a letter to Mairead McGuinness, the EU’s financial services commissioner, nine trade associations said a lack of action around securitisation reform is damaging the bloc’s financial markets.

Securitisation is the process of bundling portfolios of loans, slicing them up and selling the pieces on to other investors.

The letter said: “The absence of a well-functioning securitisation market represents a strategic loss to the European financial system. It is undermining the competitiveness of European financial institutions and limiting their ability to recycle capital to support new financing.

“It has encouraged institutional investors to shift towards other products that do not offer the same advantages in terms of protection, transparency and liquidity.”

The Commission has ruled out a review of the EU’s securitisation regulation, which the bodies said is vital after business volumes in Europe continued to decline this year, in sharp contrast to growth in other markets.

The letter’s signatories included the European Banking Federation (EBF), the Association for Financial Markets in Europe and Paris Europlace, a business lobby group.

The letter said: “Securitisation is vital to achieving the objectives of the capital markets union and addressing the very significant financing needs today and in the coming years, including those arising from the green and digital transformations, as well as from the economic impacts of the Covid-19 pandemic and the war in Ukraine.”

In the absence of a formal review, the bodies called for urgent targeted measures instead.

Securitisation became controversial in the wake of the 2008 crisis after the financial system created complex bundles of sub-prime mortgages that left investors with toxic assets worth far less than they expected.

However, it is regarded in the industry as a vital part of the plumbing underpinning the global banking system.

The dispute is the latest sign of tension between Brussels and its financial services industry.

Earlier this year, the EBF, Europe’s most powerful banking association, attacked the bloc’s proposals to raid London’s €660 trillion (£563 trillion) clearing market.

It said the Commission’s plan to punish banks for failing to shift lucrative clearing business out of the City of London would cause “serious market disruption” and “significantly weaken the attractiveness and competitiveness” of EU clearing houses.

Clearing houses act as middlemen in derivatives trades between banks and have become a vital part of the financial system since the 2008 financial crisis.

Last week, Brussels said it will demand that derivatives traders use accounts at clearing houses in the EU for some of their transactions.