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EU resurrects banking practice that caused the 2008 financial crisis (www.politico.eu)

submitted 5 days ago* (last edited 5 days ago) by [email protected] to c/[email protected]

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Securitization allows banks to repackage and resell debt, famously explained by actress Margot Robbie in a bubble bath in the film “The Big Short.”

The European Union wants to breathe new life into a financial practice most commonly associated with causing the 2008 financial crisis as it tries to jump-start banks’ lending to the economy.

On Tuesday, the European Commission will publish a package of legislation aiming to revive the industry of “securitization,” after strict postcrisis laws almost stamped out the use of the practice in the bloc.

Securitization is the practice where banks repackage and resell debt, famously explained by actress Margot Robbie in a bubble bath in the film "The Big Short." The engineering allows banks to move some assets off their balance sheets, giving them more space to extend new loans.

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[–] GreyEyedGhost 2 points 3 days ago (1 children)

Then allow me to rephrase. Checking if the forbidden thing has been done is often easier than checking if the thing which is allowed, but with many caveats and conditions, has been done correctly.

[–] Album 1 points 3 days ago* (last edited 3 days ago)

Thanks for rephrasing. The thing is with regulation when there's a caveat/condition it's forbidden not just a correctness check. I think the underlying sentiment is correct, a blanket ban on something is surely easier to enforce than a nuanced approach.

But that's my whole point since the first post. A blanket ban on securitization just locks away the whole tool when really we should just work to implement effective regulation.

The real problem is that law and subsequent regulation lags behind innovation. Like AI or crypto would be an example. So back in 2008 there was a lot of lag on securitization as an innovation. Subsequent to the crisis, in 2025 market reg is well established on securitization products and derivatives.