New financial product for Spain and 21 other EU countries

The European Commission approved, under EU State aid rules, the introduction of a new product in the form of guarantees on synthetic securitisation tranches under the European Guarantee Fund managed by the European Investment Bank Group to support companies affected by the coronavirus outbreak in the 22 participating Member States.

With an envisaged dedicated budget of €1.4 billion, the new product is expected to mobilise at least €13 billion of new lending to small and medium-size enterprises (SMEs) affected by the outbreak. “This is a significant contribution to the overall target for the European Guarantee Fund to mobilise up to €200 billion of additional financing in the 22 participating Member States,” the EU said on August 16.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said, “This new product will contribute significantly to the European Guarantee Fund’s overall target to mobilise up to €200 billion for the European economy, by helping to originate at least €13 billion of new lending by financial intermediaries to SMEs, which have been severely hit by the coronavirus outbreak.

“The European Guarantee Fund, which is administered by the European Investment Bank Group, brings together support by 22 Member States and complements the national support schemes. We continue to work closely with Member States and with the other European institutions to find workable solutions to mitigate the economic impact of the coronavirus outbreak, whilst preserving the level playing field in the Single Market,” she added on August 16.

A synthetic securitisation is a financial technique whereby an originating entity, for example a bank, identifies a pool of existing assets – a portfolio of loans – which it holds on its balance sheet, creates tranches with different risk/reward profiles against that pool, and subsequently transfers a part of the risk stemming from the pool by buying protection on a specific tranche from a protection seller. In return, the originating entity pays a premium to the protection.

More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.

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