Europe’s Capital Markets Fix Has A Buyer Problem

Europe wants securitisation to unlock lending, spread risk and push more private money into the economy. But the CEPS commentary warns that Brussels may be staring at a basic market failure of its own making: it is still talking too much about banks and not enough about the investors who actually have to buy the risk.

The reform debate is now in a decisive phase after the Commission’s June 2025 proposal, the Council position and the European Parliament’s ECON vote. The goal is sensible enough – cut unnecessary costs, revive an underdeveloped market and help Europe finance households, SMEs, infrastructure, security, defence, green transition and digital investment.

But the hard truth is simple. Issuers can package loans all they like. Without willing buyers, there is no market.

A market cannot run on sellers

Europe’s financial system is bank-heavy, so policymakers naturally focus on whether banks can originate more securitisations, transfer risk and free up capital for new lending.

CEPS says that is only half the picture.

Securitisation is not a closed banking machine. It is a capital markets instrument. It needs issuers willing to bring deals to market and investors willing to buy, hold and price the risk. That includes banks, but also insurers, pension funds, asset managers, specialist credit funds and non-bank originators.

Europe keeps saying it wants deeper capital markets. This is where the rhetoric meets the buyer.

Brussels wants policy. Investors want returns.

The political logic is clear: Europe needs more market-based finance, more risk sharing and more channels to turn savings into productive investment.

Investor logic is harsher. They care about risk-adjusted returns, liquidity, diversification, regulatory treatment, operational workload and legal certainty.

That gap matters. Investors will not buy securitisations to make the EU’s Savings and Investments Union look good. They will buy only if the asset class is investable.

That is the uncomfortable discipline Brussels cannot regulate away.

Simplification is still uneven

The Commission proposal does move in the right direction. It would reduce some verification burdens for EU institutional investors buying EU securitisations, make parts of due diligence more principles-based and ease some transparency reporting.

The planned review of reporting templates, including a major cut in mandatory data fields and lighter templates for private securitisations, also tackles a real problem. Investors need useful information, not a box-ticking machine that burns time and money.

But CEPS argues the simplification remains asymmetric. The sell side gets relief. The buy side still faces barriers that could keep the market stuck.

The third-country trap

The biggest snag concerns EU investors buying non-EU securitisations.

Non-EU issuers are not directly subject to the EU Securitisation Regulation and do not have to produce disclosures in the EU format. Yet EU investors may still be expected to verify compliance with EU rules when buying those assets.

That is not a formal ban, but it can work like one. It turns EU investors into compliance detectives for transactions where the foreign issuer has no legal duty to follow EU paperwork.

The result could be perverse. Instead of pushing investors into European securitisations, Brussels may push them out of securitisation altogether.

Legal risk could scare off buyers

CEPS also warns against a separate sanctions regime for investors that fail due diligence requirements.

The concern is not that safeguards should vanish. Risk retention, transparency, sound lending standards and the ban on re-securitisation remain essential after the financial crisis.

The problem is duplication and uncertainty. If securitisation carries heavier operational and legal risk than comparable fixed-income assets, investors may simply choose covered bonds, corporate bonds, private credit or other structured credit instead.

That would leave Europe with another grand reform that looks neat on paper and weak in the market.

Europe needs global access 

The paper rejects the idea that restricting access to international securitisation markets will automatically boost European demand.

Investor expertise grows through scale, diversification and exposure to a deep global market. A narrow EU-only universe may make the asset class less attractive, not more.

That matters because Europe’s securitisation investor base is already thin. If EU rules make global portfolios harder to build, domestic market depth may suffer too.

The weakness is not just supply. It is demand.

The key point: Investors will decide if reform works

CEPS’s message to the trilogue is blunt but practical. The final framework must make securitisation investable while keeping the safeguards that matter.

Cutting issuance barriers is necessary. Adjusting bank capital treatment may help. But supply will not create demand by magic.

Europe wants securitisation to become real financial infrastructure, not a legacy-risk niche product. That will happen only if the rules work for both sides of the market.

Brussels can put securitisation back on the agenda.

Investors will decide whether it lives.