International

European Commissioner Jonathan Hill, responsible for ‘Financial Stability and Financial Services’, today presented his proposal for a capital markets union. An important initial element was that banks should be once again allowed to trade packages of loans, including those extended to small and medium-sized firms. Commenting on the proposed measures, SP Euro-MP Dennis de Jong said: 'The bank lobby has again done its work well. Hill says that he wants to help improve access for small and medium-sized firms to finance, but that’s an opportunistic argument. He has evidently forgotten that it was precisely the bubble created by this sort of package, at that time principally of bad mortgage loans, that brought about the crisis. The best thing we can do with this proposal is bin it as quickly as possible.’

The Commission claims that there are now in place all kinds of safeguards which will prevent the new packages from presenting any danger. ‘I don’t believe a word of it,’ says De Jong. ‘Of course smaller businesses need finance, but you need to be aware that many very small firms begin enthusiastically, but in the end despite that can’t win the battle and sink into bankruptcy. You can never rule out that risk, so you’re creating once again the danger of flimsy financial products: that works fine for the banks in good times, but as soon as there’s a setback, the consequences are incalculable. I had hoped that we would have learned from the financial crisis, but Commissioner Hill evidently considers the short term interests of the banks and other financial institutions more important than financial stability.´

The packages of loans, known as ‘securitisations’, make it easier for banks to stave off risk. Even if they themselves have little confidence in the creditworthiness of those taking out loans, they can sell the loans as a package and still make a profit. ‘During the financial crisis, it emerged that banks had given out mortgages far too readily,’ explains De Jong. ‘That was a result just this kind of mortgage package, which they would then sell on. When the housing market collapsed, it turned out that the mortgages could no longer be paid off and leaving the purchasers of the securitisations, just like the householders, to be the fall guys. The same scenario could also take place in relation to the securitisations which consist of loans to smaller firms. So we shouldn’t do this.’