Europe’s Funding Gap: How Securitisation Could Unlock €500B in Capital

By VirentaNews Staff — May 27, 2026

Europe faces a persistent €500 billion annual funding gap in its capital markets, a shortfall that threatens its ability to finance the green and digital transitions, according to recent analysis by the European Commission and financial regulators. Unlike the US, where corporate bond and securitised markets supply over 80% of business financing, Europe remains heavily reliant on bank lending, which strains lenders’ balance sheets and limits risk diversification. Securitisation—pooling loans and repackaging them into tradable securities—could help bridge this gap by unlocking private capital, improving liquidity, and reducing systemic risk. With the EU aiming for strategic autonomy and resilience, deepening capital markets through expanded securitisation is now a top economic priority.

Why Europe’s Capital Markets Lag Behind

Europe’s capital markets are fragmented along national lines, with regulatory divergence, tax disparities, and legal uncertainty hindering cross-border investment. While the US has a well-established securitisation ecosystem supported by agencies like Fannie Mae and Freddie Mac, Europe’s framework has been cautious, especially after the 2008 financial crisis when complex asset-backed securities were blamed for amplifying the downturn. As a result, only about 25% of corporate financing in the EU comes from capital markets, compared to over 80% in the US. This imbalance stifles innovation, constrains mid-sized firms’ access to funding, and increases vulnerability to banking sector shocks. The Capital Markets Union (CMU), launched in 2015, has made limited progress, but renewed focus on securitisation is seen as a way to accelerate integration and boost efficiency across the bloc.

The Role of Securitisation in Market Development

Securitisation involves bundling loans—such as mortgages, auto loans, or small business debt—into structured securities that can be sold to investors. When properly regulated, it allows banks to free up capital, extend more loans, and diversify risk away from the banking sector. In Europe, the market for simple, transparent, and standardised (STS) securitisations has grown since the introduction of the EU Securitisation Regulation in 2017, but volumes remain modest, totalling around €60–70 billion annually. By comparison, the US securitisation market exceeds $1 trillion per year. Expanding EU securitisation could direct institutional investor capital—particularly from pension funds and insurers—toward strategic sectors like renewable energy, electric vehicle infrastructure, and digital startups. The European Central Bank has also signalled support, noting that deeper markets would enhance monetary policy transmission and financial stability.

Policy Momentum and Regulatory Shifts

In 2023, the European Commission proposed reforms to revitalise the CMU, including simplifying disclosure requirements, harmonising insolvency laws, and creating a pan-European securitisation safe harbour. These changes aim to make it easier for banks and non-bank lenders to issue asset-backed securities without triggering punitive capital charges. The European Banking Authority (EBA) has also recommended revising risk-weighting rules that currently discourage banks from holding securitisations, even high-quality ones. Meanwhile, the European Investment Bank (EIB) has piloted synthetic securitisations to support SME lending, demonstrating how public credit enhancement can catalyse private investment. While the EU’s renewed push for capital market integration is gaining political traction, success depends on overcoming national resistance and ensuring strong investor protections to prevent a repeat of pre-2008 excesses.

Implications for Businesses and Investors

A deeper securitisation market would benefit small and medium enterprises (SMEs), which account for 60% of EU employment but often struggle to access long-term financing. By enabling lenders to offload portfolios, securitisation can increase credit availability and lower borrowing costs. Institutional investors, meanwhile, would gain access to diversified, yield-generating assets aligned with ESG goals. However, risks remain: poor underwriting standards, lack of transparency, and misaligned incentives could undermine confidence. The STS framework is designed to mitigate these dangers, but enforcement across 27 member states varies. Moreover, retail investors may face new exposure to credit risk without adequate safeguards. If managed prudently, securitisation could become a cornerstone of Europe’s financial architecture, but missteps could erode trust and trigger regulatory backlash.

Expert Perspectives

Economists are divided on the pace and scope of expansion. Some, like former ECB officials, argue that Europe must act swiftly to close the capital market gap or risk falling behind globally. Others caution against overreach, noting that the US model includes implicit government guarantees that Europe lacks. “Securitisation isn’t a magic bullet,” warns Beatrice Weder di Mauro, professor of international economics. “It requires strong legal frameworks, credible oversight, and investor education.” The IMF has echoed this, urging the EU to prioritise simplicity and transparency over volume growth.

Looking ahead, the success of Europe’s securitisation push will depend on three factors: harmonisation of national laws, development of liquid secondary markets, and sustained investor demand. Pilot projects in green securitisation—such as bundling solar panel loans—are being closely watched as potential models. The European Commission aims to double securitisation volumes by 2027, but achieving this will require coordinated action across regulators, central banks, and market participants. If Europe can build a safe, scalable securitisation ecosystem, it may finally unlock the capital needed to power its long-term economic transformation.

Source: Financial Times