BRUSSELS — The European Union wants to breathe new life into a financial practice most commonly associated with causing the 2008 financial crisis as it tries to jump-start banks’ lending to the economy. On Tuesday, the European Commission will publish a package of legislation aiming to revive the industry of “securitization,” after strict postcrisis laws almost stamped out the use of the practice in the bloc. Securitization is the practice where banks repackage and resell debt, famously explained by actress Margot Robbie in a bubble bath in the film “The Big Short.” The engineering allows banks to move some assets off their balance sheets, giving them more space to extend new loans. In the pre-2008 lending boom, American banks sold their dodgiest “subprime” loans to investors around the world. When the U.S. housing bubble burst and borrowers defaulted en masse, a global financial crisis ensued. Brussels now wants to loosen the rules governing the practice, meaning banks would need to put aside less capital against the loans they trade, as well as easing due diligence and reporting rules around the practice. But the Commission insists enough safeguards will remain to protect against a repeat of 2008. PINT-SIZED MARKET The European market is pint-sized compared with others globally: It shrank from being worth around €2 trillion at its precrisis peak to €1.2 trillion now. The U.S. market has grown from being worth $11.3 trillion (€9.76 trillion) in 2008 to $13.7 trillion (€11.83 trillion) now — leading senior officials at the Commission to call securitization an “underexploited tool in Europe.” Buzzy political reports from figures like former Italian prime ministers Enrico Letta and Mario Draghi on how to boost the bloc’s ailing economy called for a revival of securitization in the EU to boost bank lending to businesses. The push on securitization forms part of the Commission’s wider plan to stimulate an investment culture in the bloc and turn around its sputtering economic growth. Buzzy political reports from figures like former Italian prime minister Mario Draghi on how to boost the bloc’s ailing economy called for a revival of securitization in the EU to boost bank lending to businesses. | Paulo Novais/EFE via EPA Governments including in France and Germany have lobbied heavily to see the rules loosened as this would boost their banking sectors, while finance ministers and heads of government all called on the Commission to revive the market — making it a political priority for Commission President Ursula von der Leyen when she was reelected last year. Banks will be thrilled to see a revival of the practice in Europe — not least because holding less capital against the risk of securitizations will give them more cash to play with. NOT EVERYONE IS CONVINCED The Commission is hoping that will translate into more available bank lending — but others aren’t convinced. The NGO Finance Watch said securitizations “won’t channel capital to where it’s needed most” because “they are made of the wrong kind of loans and are used in the wrong kind of way.” The NGO argued that “banks are under no obligation to use the so-called ‘freed-up capital’ to support loans to the productive parts of the economy,” and that the extra cash will commonly be used to meet regulatory requirements or boost shareholder returns through dividends or buybacks. Top banking supervisors at the European Central Bank’s supervisory arm warned that lowering bank capital requirements in an attempt to boost the securitization market “would not provide further incentive to transfer risks out of the banking sector and would come at the cost of further deviations from international standards.” The ECB also called on the Commission to draw on “the lessons of the global financial crisis, when opaque and complex securitisations led to excessive risk-taking,” warning that the EU should “ensure that securitisation does not create excessive leverage in the financial system by fuelling asset bubbles and hiding risks on bank balance sheets.”

The European Commission plans to make it easier for banks to invest in resold debt, known as “securitization,” under draft proposals to revise rules for the practice seen by POLITICO. The Commission will publish its revision of the EU’s securitization rules in a legislative package on June 17. This will include changes to the Capital Requirements Regulation, the Securitization Regulation, and two secondary laws, the Liquidity Coverage Requirement Delegated Act and the Solvency II Delegated Act. Under the draft plans here and here, the EU executive intends to change how capital requirements for banks investing in securitization are calculated to make them more “risk-sensitive” — in practice making it easier and more attractive for banks to engage in the practice. The plans also seek to loosen due diligence and reporting rules. The revamp forms part of the EU’s push to deepen and integrate its capital markets to generate more capital to invest in businesses under its “savings and investments union” plan.

The EU needs to radically ramp up efforts to slash red tape and unify its single market if it wants to compete with China and the United States, France’s Europe minister told POLITICO. Benjamin Haddad applauded efforts by the European Commission to start streamlining rules in fields such as finance and sustainability as part of a so-called Omnibus Simplification Package, which was launched last month. But the European Union now needs to pick up the pace in revamping rules on corporate sustainability, due diligence, finance and defense, among other areas — taking much bolder steps than it has so far. “Now I think we need to accelerate. The Omnibus needs to become a TGV,” he said, referring to France’s Train à Grande Vitesse high-speed rail lines. “When the Commission wants to go fast, it can do so … There is a window to act now.” Asked whether the Omnibus package should be followed by further efforts to slash red tape he said: “Of course. We’ll need to address many other areas, including defense. It is almost one year since the European Parliament election. And now we are starting to talk about the first [simplification] bills. We have a window to act and we need to take it.” Haddad’s comments come in the wake of a joint push on Monday by the leaders of both France and Germany to abolish a law on ethical supply chains, amid a pro-business anti-green effort designed to bolster Europe’s competitiveness. The Europe minister said several EU countries, in addition to France and Germany, want to go beyond the Commission’s proposed streamlining and abolish the Corporate Sustainability Due Diligence Directive. “In trilogue, at the Council, there will be many states that want to go further than the Commission’s proposals, notably on due diligence,” he said. Haddad also took aim at the EU’s 2040 climate targets and said Basel III — an international banking regulation designed to improve bank capital and liquidity — should be further delayed after the EU postponed implementing components of the regulation until the start of 2026. “I hear about other projects from the Commission, like creating new environmental benchmarks for 2040,” he said. “This is not the time to add complexity, but to see how we can make sure our companies are competitive on the international stage.” “At a basic level, we can’t allow decarbonization to reinforce Chinese and American industry. So let’s have a pause on further norms and let’s accompany our companies, protect them.” While hacking away at regulation, the EU also needs to overcome decades of inertia and start to unify its fragmented single market so EU companies can draw on deeper stores of capital and grow large enough to compete with American and Chinese rivals, Haddad said. He emphasized the need to push ahead with the formation of a so-called capital markets union — an idea that has failed to gain critical mass among EU countries despite years of advocacy by Paris and Berlin. “There will be proposals in coming months which go in this direction on the capital markets union, whether it’s on securitization or on a European savings account or a single supervisory authority,” he said. “Now is the time to go ahead with these things.” Another item on Haddad’s wish list: a common legal regimen for companies across the bloc. Currently, companies wishing to expand beyond their national borders need to grapple with 27 different legal systems — a problem that former Italian Prime Minister Enrico Letta has vowed to solve by creating a 28th, European regime. “I’d go even further,” Haddad said. “I know the Commission is working on a 28th regime of corporate law. We’re not going to harmonize everything overnight. But let’s add a 28th regime for companies that can choose between a national or European regime if they want to develop on a European scale.”

A new year, a new European Commission — but the same old fights. From reviving European markets to keep pace with China and the U.S. to advancing digital and green initiatives, Brussels faces a pivotal year of economic and financial challenges. Here’s POLITICO’s rundown of the key finance policy battles shaping 2025: THE ‘SAVINGS AND INVESTMENTS UNION’ The EU’s long-stalled capital markets union has been rebranded as the Savings and Investments Union — but the name change hasn’t made it any less contentious. Two major legislative efforts are already in play: a revamp of the EU’s retail investment rules (RIS), and its attempt to patch up holes in bank crisis management rules (CMDI). Both have been watered down in negotiations, frustrating the Commission. With RIS, Brussels faces a tough choice: scrap and rewrite the proposal or settle for a diluted version likely to require further revision soon. Meanwhile, efforts to revive the market for resold debt, known as securitization, are stirring memories of the 2008 financial crisis. Southern EU nations remain wary, while industries like insurance — whose massive pools of investment the Commission wants to attract to the securitization market — are largely indifferent. The Commission is also weighing ideas like consolidating financial markets and creating simple EU investment products, though many member states remain resistant. DEFENSE SPENDING For years, Western European countries largely ignored calls from anti-Russia hawks to boost their military expenditure. But Russia’s invasion of Ukraine in 2022 and the prospect of a second Donald Trump presidency have reignited EU defense debates. While most countries agree on the need for stronger defense capabilities, the challenge lies in funding. Debt-laden nations like Italy and France that fall short of NATO’s defense spending target of 2 percent of gross domestic product have little room to increase their military budgets without making cuts to other sensitive areas. They prefer issuing common EU debt to finance defense — an idea firmly opposed by fiscally conservative states like Germany and the Netherlands. The European Commission must navigate a path that satisfies hawks, southern nations far from Ukraine, and fiscal hardliners. Commission President Ursula von der Leyen has taken prospective amendments to another level by announcing a bumper “omnibus” law that is expected to merge a number of green rules together. | Buda Mendes/Getty Images THE EU’S LONG-TERM BUDGET  Negotiations over the EU’s next seven-year budget will start in earnest this summer when the European Commission will formally put forward its proposal for 2028-2035.  While the amounts under actual negotiation are negligible, the final outcome is seen as a bellwether of a country’s power in Brussels.  As a result, EU power brokers are already dusting off their abacuses and assembling coalitions. Hawkish Eastern European and Nordic countries including Poland and Sweden are keen to boost EU spending on defense, while Southern ones such as Italy and Greece would prefer more cash to stem migrant arrivals from Africa.  In 2025, EU countries will set their red lines for the negotiations. But if the past is anything to go by, leaders will squabble over the details till the eleventh hour. THE GREEN RULES BONFIRE Green finance rules were already set to dominate the 2025 agenda, with tweaks to the Sustainable Finance Disclosure Regulation widely expected to iron out kinks in a text that has hugely impacted industry. But now Commission President Ursula von der Leyen has taken prospective amendments to another level by announcing a bumper “omnibus” law that is expected to merge a number of green rules together. The package is already sparking political fights over which laws to include, with the finance sector bracing for an intense legislative battle. THE ‘OPEN FINANCE’ REVOLUTION  Lawmakers are debating key financial reforms, including a financial access data bill and payment sector rules, pitting Big Tech against traditional finance. The data bill would force insurers and other financial firms to share customer data with third parties, in a bid to foster innovation. While consumer advocates are wary of Big Tech’s growing role, policymakers have added oversight provisions for major digital platforms designated as “gatekeepers.” Green finance rules were already set to dominate the 2025 agenda. | Christopher Furlong/Getty Images However, there is no formal prohibition on their entering the financial data market directly to offer new products. PAYMENT PROVIDERS VS. DIGITAL PLATFORMS On payments, the biggest fight centers on fraud liability. Payment providers want digital platforms held partly responsible for fraud on their systems given that online communication channels have become a key tool for fraudsters, a move the online platforms strongly oppose. So far, the EU executive has stayed neutral, arguing payment reform may not be the best way to address the issue. As a result, governments and lawmakers will have the last word.