In an interview with Bloomberg, European Central Bank (ECB) Supervisory Board member Pedro Machado supported efforts to revive securitisation but reiterated concerns about proposed safeguards and the potential for risk to flow back to banks. He urged a combined assessment of capital reforms, including securitisation relief, and retention of regulatory backstops such as the output floor to prevent risks being underestimated. He also highlighted supervisory scrutiny of credit underwriting and cybersecurity risks associated with artificial intelligence (AI). Securitisation should deliver significant risk transfer, supported by sound risk management and governance. The proposed treatment of unfunded insurance protection in synthetic securitisations qualifying as simple, transparent and standardised (STS) departs from the ECB’s recommendation because insurers could become unable to honour their protection. Machado reiterated a preference for absolute risk weight floors of at least 7% on senior tranches, expressing concern that floors for resilient STS securitisations would fall below that level. Separately, structures in which banks finance credit-linked notes while insurers assume the credit risk can create funding links that return risk to the banking system. The ECB has not identified a specific case of these risks materialising, but increasing complexity would trigger more comprehensive assessment and prevent transactions from qualifying for the fast track procedure for significant risk transfers. On AI financing, the ECB’s 2026 thematic review of underwriting standards scrutinises how banks assess and price risks, including the different stages of data centre development and operation. Around 85% of banks already use generative AI. More advanced AI models shorten the interval between discovery and exploitation of cyber vulnerabilities, making rapid patching and system hygiene key supervisory concerns. A fuller assessment of banks’ responses will follow receipt of their action plans, due by the end of October.
ECB’s Pedro Machado reiterates concerns over securitisation safeguards and urges retention of capital backstops
In a Bloomberg interview, ECB Supervisory Board member Pedro Machado backed securitisation market development while reiterating concerns about unfunded insurance protection, senior tranche risk weight floors below 7% and structures that could return risk to banks. He urged retention of capital backstops and a combined assessment of reforms that reduce capital requirements. He also highlighted scrutiny of data centre lending standards and AI-related cyber risks, with banks’ action plans due by the end of October.