* Momentum builds for relaunch of securitisation in Europe
* Ex-IMF chief de Larosiere shows how it could work
* Bank lobbyists behind the push shoot at open goal
* Sceptics sound alarm at dangers
By John O'Donnell
BRUSSELS, April 21 Jacques de Larosiere says he
is an isolated and modest man. Yet the 84-year-old former head
of the International Monetary Fund is one of the most
influential voices in European and global finance.
An eminence grise as respected among France's political
elite as in the heart of the law-drafting European Commission,
de Larosiere finds himself at the nexus of finance and
rulemaking, treading a fine line between lobbying and advice.
Following the financial crash, his blueprint - produced by a
group of experts he led at the request of the European
Commission in 2009 - shaped the most ambitious round of banking
reform in Europe's history.
Now he is pushing to help banks with a scheme that some
experts warn could repeat mistakes that led to the collapse.
His work provides a rare glimpse of the ease with which
European lawmakers interact with industry and how banks, despite
the crash, still shape the 'rules of the game'.
He runs a Paris-based think-tank called Eurofi where
investment banks such as Goldman Sachs and JP Morgan
pay for membership in part to interact with the
officials and parliamentarians who decide the fate of their
Although he is no longer on its payroll, he provides advice
to BNP Paribas and has an office at the bank.
In biannual meetings of the Group of 30, an elite body of
financiers and academics who meet around the globe, de Larosiere
rubs shoulders with Mario Draghi, the President of the European
Central Bank, and former U.S. Treasury Secretary Timothy
Now he is proposing a scheme to securitise - repackage and
sell to insurers, pension funds and possibly even the ECB -
loans made in the go-go years that have turned into a dead
weight on banks' finances. The declared aim is to make it easier
for the banks, once unburdened, to lend to credit-starved small
and medium-sized companies.
The plan, outlined last month at a Eurofi event on the
sidelines of a meeting of European finance ministers and central
bankers in Athens, could play a pivotal role if the ECB embarks
on quantitative easing or money printing to buy such assets.
"It would provide some breathing space to the financial
sector that is being stifled," de Larosiere told Reuters.
CHANGE OF HEART
There is support for such a move. Last month, the European
Commission said it would loosen the rules to make it easier for
insurers and pension funds to invest in securitised debt. And
the ECB is warming up to its use, accepting more such debt as
security in return for credit.
Michel Barnier, the French commissioner in charge of
regulating finance, announced that he would cut the amount of
capital investors must carry to cover potential losses on such
investments, paving the way for them to snap up such debt from
banks, who are eager to sell.
Insurers, said Barnier, have 84 trillion euros of assets,
while pension funds have 37 trillion euros - money that could
help unlock lending and tackle the concerns of voters over the
economic malaise ahead of European elections.
He was among the speakers at Eurofi in Athens, where he
outlined plans to "revive sustainable securitisation markets",
drawing a distinction between what he called "good and bad
It marks a change of tack when dealing with the financial
industry. Having temporarily banned officials from meeting
lobbyists ahead of a contested proposal to shake up the
structure of big lenders, Barnier's latest rule change is more
For Graham Bishop, an economist and advisor to the European
Commission, the reason for this change of heart is clear.
European businesses need their banks.
While companies in the United States are ever more
enthusiastic about selling bonds and raise almost as much
finance this way as by borrowing from banks, euro zone firms
rarely turn to financial markets.
"If you are going to go banker bashing, then you bash the
economy as well," said Bishop. "That's why the politicians have
had to take a deep breath and start dealing with the devil
De Larosiere, who works from offices in an upmarket address
in Paris, a short walk from the Champs Elysee, describes himself
as "modest". He dipped a croissant in his coffee as he talked to
"I'm an isolated man who happens to be chairman of a
think-tank," he said. But his track record bears testimony to
the sway that he holds.
It was de Larosiere who framed the debate that led to many
reforms including the European Central Bank's new role as
supervisor. His plan for securitisation may be shooting at an
His Eurofi conference, traditionally held when Europe's
finance ministers travel to 'informal' meetings, attract
heavyweights such as Geithner and Jean-Claude Trichet when he
was ECB president.
Held in expensive hotels under tight security and strictly
off-limits to journalists, the event is designed to set the
Last month, members gathered in a Hilton hotel in downtown
Athens and heard de Larosiere explain his vision for
It received enthusiastic support from some, including Xavier
Musca, who was economic advisor to former French President
Nicolas Sarkozy and is now a top manager at Credit Agricole.
De Larosiere's arguments are persuasive, as politicians and
the ECB grapple with an economy stuck in the doldrums despite
record low borrowing costs.
"In order to overcome the negative connotation of
securitisation that comes from the scandal, you need to overcome
the very bad image," said de Larosiere. "The way to do that is
to focus on 'very good, well rated, simple to understand'. Those
words are important."
The market is potentially large. Banks have lent almost 4
trillion euros in loans of under 1 million euros, according to
Many in Brussels are persuaded that it makes sense to shift
these loans away from banks and towards pension funds and others
in the hope that banks will then be prepared to lend again.
But securitisation evokes memories of the dodgy mortgages
and car loans packaged by U.S. banks that triggered a credit
crunch in 2007, leading to the collapse of Lehman Brothers bank,
which sent shockwaves around the world and caused the 'Great
"We are not going to invite a new subprime disaster," said
Barnier last month.
Pervenche Beres, a French lawmaker in the European
Parliament, is not convinced.
She recalls a similar debate when she reluctantly accepted
an invitation to lunch with top Goldman Sachs executives in June
2010 at their New York headquarters.
"They were crystal clear that they did it all correctly ...
that they were helping the economy," Beres told Reuters,
recounting how Goldman Sachs executives argued the case for
"I'm very sceptical," she said. "I have yet to be convinced
that there is 'good' securitisation."
The discussion - or lobbying - will continue. For Sylvie
Goulard, a centre-right lawmaker in the European Parliament, the
contact with industry is welcome.
Goulard said it was important for lawmakers to talk to the
banks they are responsible for regulating, to ensure that
legislation did not choke off lending.
"It would be ridiculous not to accept invitations to talk to
them about banking regulation when you think what is at stake
for the functioning of our economies," she said, defending de
Larosiere, who she said had often taken contrary views to banks.
Barnier dismissed the idea that banks swayed his views. "No
lobbying will impress me," he recently told Reuters. "I listen
to all sides."
Europe has a better track record with securitisation than
the United States, but experts still see perils.
"In order to judge an SME (small and medium-sized
enterprise) loan, you have to visit the CEO," said Frederic
Hache, a former banker with Finance Watch, a group that seeks to
counterbalance the industry lobby in Brussels.
"That's not something every investor can do. Investors will
have to rely on banks' credit assessment."
But in the end, the desire to kick-start Europe's debt-laden
economy may override concerns about the risks.
"Finance is so central to the economy, and particularly when
you are talking about these debt levels," said Commission
advisor Bishop. "Politicians have realised this. If you kill it,
you kill yourself."
(Additional reporting by Paul Taylor in Paris; Editing by Will