ECB Questions Effectiveness of Synthetic Securitizations in Boosting Corporate Credit

The European Central Bank (ECB) has released an analysis questioning whether synthetic securitizations effectively boost bank credit. According to the report, synthetic securitizations allow financial entities to free up regulatory capital by transferring risk to investors, but their impact on expanding corporate credit is 'too small'.

The study focused on the European synthetic securitization market and found that these operations have nearly tripled since 2021, with a moderate recovery driven mainly by synthetic transactions. However, the report emphasizes that, in practice, entities are largely opting to return freed capital to shareholders rather than allocating it to new loans.

The ECB warns that the effect of synthetic securitizations on dividend payments is three times greater than their impact on corporate credit: for every 1% increase in issuance, dividends rise by 0.07%, compared to 0.02% for company loans. The report notes that this may indicate entities are using securitizations to maintain efficient capital structures and reinforce shareholder remuneration.