The tendency of European banks to resort to securitisation of loans has allowed them to dispose of the credit risk and at the same time it has fuelled banks’ loan growth on the supply side.
Before elaborating on the risks emanating from the interaction of the three aforementioned factors, it might be worth recalling how the ECB saw the situation six months ago, before the financial market turmoil gathered pace. In this context, let me refer to some pertinent quotes and conclusions included in the June 2007 FSR (see slide 4).