Abstract
A large set of tools is in place in order to restart the SME credit engine in Europe. This chapter provides a detailed description of all the measures proposed and taken. These measures include direct lending, guarantee schemes, credit insurance equity finance, funding escalators, crowdfunding, peer-to-peer lending, prime collateralized securities, and so on.
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An availability payment is a payment for performance made irrespective of demand.
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See Infelise (2014), for a review of policies in the four major EU countries. Best practices are reviewed in IIF-B&C (2013). For an extensive review of policies to support credit to SMEs in Ireland, see Holton et al. (2013). Major initiatives at the EU level are reviewed in Giovannini and Moran (2013).
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Given the pivotal role of securitization as an alternative and flexible funding channel, failure to restart securitization would come at the cost of prolonging funding pressures on banks and a diminution of credit. (IMF 2009)
Securitization helped cause a crisis that killed it. A proper reincarnation should help the recovery. (FT 15 September 2010)
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A uni-tranche debt facility is a single tranche term facility, provided principally by credit funds. More narrowly, it is a term facility which, from a borrower’s perspective, contains only one class of lender and under which a common interest rate is charged.
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On GSE, see Acharya et al. (2011a) and Acharya et al. (2011), who define them as the “world’s largest and most leveraged hedge funds”. Since 1992, GSEs were supervised by the Office of Federal Housing Enterprise Oversight (OFHEO), lodged in the Department of Housing and Urban Development (HUD). GSEs started lowering their underwriting standards since the mid-1990s.
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It may be noted that the abrupt cessation of the securitization market to convert a broad range of collateral into credit in the market was substantially mitigated by the central banks’ collateral frameworks (broad eligibility criteria and stable haircuts) and accommodating liquidity management policies. These were the most important policies and tools for systemic crisis management.
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This was not the case at the beginning provided CRSs were rating corporate bonds and therefore issuers tended to be small. In this case, losing an issuer to a competitor is not an issue. Things changed with securitization (see fn 9).
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For example, Moody’s and Standard & Poor’s were responsible for 94 % of ratings in the US market (see fn 10).
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Twelve underwriters account for 80 % of the deals in the USA (Mullard <CitationRef CitationID="CR54">2012). In this situation, losing a single issuer is a major concern.
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The most prevalent market participants are Lending Club and Prosper.
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The main platforms in the UK are Funding Circle and Zopa, with the former focusing on SMEs and the latter on consumer lending. An overview of all P2P market participants in the UK can be found at http://www.p2pmoney.co.uk/companies.htm
References
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Oricchio, G., Lugaresi, S., Crovetto, A., Fontana, S. (2017). Restarting the Credit Engine in Europe. In: SME Funding. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-58608-7_6
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DOI: https://doi.org/10.1057/978-1-137-58608-7_6
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