In assessing options to redress the lack of funding currently available to small- and medium-sized enterprises (SMEs) in the European Union, the European Investment Fund (EIF) has released a Working Paper entitled "SME Loan Securitisation 2.0 - Market Assessment and Policy Options", which suggests that one option could be to use a new "Joint Securitisation Initiative" (JSI) to securitise existing SME loans with the EIF (and/or others) subscribing to or guaranteeing the notes issued. Use of the JSI would allow existing (as well as new) loans to be securitised, and the EIF envisages that the senior tranche of any JSI SME securitisation would be placed partly with the European Investment Bank and partly with private third party investors, the mezzanine slice with the EIF and either the EU Structural and Investment Fund or the Programme for the Competitiveness of Enterprises and SMEs, and the first loss piece shared between the originator and the EIF. All other aspects of the securitisation would be structured normally. In considering possible intervention in the SME securitisation market, the EIF notes the appetite of the European Commission to improve funding conditions for SMEs (see Edition 4 of this Briefing which summarised a European Commission Green Paper on financing the European economy), but notes that the EU has not yet decided how to achieve this (the EIF's suggestions may be taken into account). Further support for the securitisation market as a provider of non-bank finance to SMEs came this month from Yves Mersch, Member of the Executive Board of the European Central Bank, whose recent speech noted that the removal of two key obstacles (misperceptions about securitisation due to the 'originate to distribute' model, and the lack of clarity over the regulatory capital treatment of securitisations under the Basel III and Solvency II frameworks) would greatly improve the market outlook, and help provide urgent financing to SMEs.
European Investment Fund Working Paper
Yves Mersch Speech