ECB casts doubt on synthetic securitisation's lending boost

An ECB analysis found that banks use only a small fraction of capital freed by synthetic securitisation for new corporate loans, instead favouring dividend payouts. The effect is too small to dent Europe's €750-800 billion annual investment gap, per the ECB.

Bottom line — A 1% rise in synthetic issuance links to just 0.02% more corporate loans, per ECB.

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• The ECB blog, by Johanne Evrard and colleagues, found that banks issuing synthetics grew corporate lending by about 5% on average from 2018 to 2025, versus 1% for non-issuers.
• After controlling for bank size, capital and economic conditions, the effect shrank: a 0.02% lending increase per 1% rise in synthetic issuance, per the ECB.
• The impact on dividend payouts was three times larger: a 0.07% increase for every 1% rise in synthetic issuance, according to the ECB analysis.
• Synthetic securitisation volumes have nearly tripled since 2021, reaching about €480 billion in SME-backed deals by end-2025, against €380 billion for traditional securitisation, the ECB said.
• The ECB noted that securitisation's role may grow if banks face tighter funding, but warned that retaining less capital or increasing leverage could weaken shock absorption.
• Research cited by the ECB suggests banks using released capital for lending may reduce borrower monitoring and create stronger links with non-bank finance, spreading stress.
• The ECB cautioned against focusing solely on reducing bank capital charges for securitisation, arguing that financial markets and equity investors are better suited to finance risky projects.

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