Synthetic Securitisation Falls Short on Boosting Corporate Lending

The European Central Bank (ECB) has found that synthetic securitisation provides only a marginal boost to corporate lending, raising questions about its potential contribution to European economic growth.

Synthetic securitisation is a process where banks keep loans on their balance sheet but transfer the risk of borrowers defaulting to investors through financial contracts called credit derivatives.

The ECB analysis found that banks issuing synthetic securitisations did lend marginally more, but they also tended to return more capital to shareholders through dividends.

The analysis concluded that the potential economic benefits of synthetic securitisation should not be overstated and that deeper and better integrated capital markets are an important objective for the Savings and Investments Union.