MNI BRIEF:ECB Warns Brussels On Synthetic Securitisation Scale

The ECB has warned the European Commission that the continued growth of "synthetic" securitisation deals poses financial stability risks and says that the EU's prudential rules should discourage such transactions. 

Frankfurt backs the European Commission's proposal to encourage the expansion of simple transparent and standardised securitisations which transfer loan risk off the balance sheets of the originating financial institutions, according to its legal opinion of the Commission proposal.  But it warns against synthetic products which keep loans on bank balance sheets while using insurance protection - like Credit Default Swaps - against default risk without any need for the originating bank to increase capital. However, "continued risk monitoring is therefore needed," the ECB adds. 

Reviving the EU's securitisation markets is regarded by the EU as a potentially important driver of the EU's Savings and Investments Union ambitions.