Unpacking the Credit Engine: How Securitisation Amplifies Monetary Policy Transmission

 Authors: Dorian Henricot and Enrico Sette

Publication: European Central Bank Working Paper Series (No 3289 / September 2026)

Introduction: The Resurgence of European Securitisation

For years following the Global Financial Crisis (GFC), European securitisation remained in a prolonged period of dormancy. However, recent years have witnessed a major comeback. Driven largely by synthetic transactions and Significant Risk Transfers (SRTs), the aggregate volume of securitised loans originated by euro area banks surged to approximately €1.5 trillion by the end of 2025—an increase of roughly 50% since the pandemic.

As central banks navigate shifting economic cycles, this resurgence poses a crucial policy question: Does the growing use of securitisation change how interest rate decisions transmit to bank lending and the real economy?

A new European Central Bank (ECB) working paper by Dorian Henricot and Enrico Sette challenges conventional banking wisdom to answer this exact question.

Conventional Wisdom vs. The New Reality

Historically, the dominant economic literature argued that securitisation dampens the bank lending channel of monetary policy. Under this traditional view, selling or insuring loans makes banks’ balance sheets more liquid and relaxes regulatory capital constraints. By diversifying funding sources away from retail deposits, securitising banks were thought to be insulated from interest rate hikes.

Henricot and Sette turn this view on its head. They argue that traditional models fail to treat securitisation as an outcome that itself responds dynamically to central bank policy.

Instead of dampening rate hikes, securitisation actually heightens and amplifies banks' sensitivity to monetary policy tightening.

The Underlying Mechanism: Capital Space meets Investor Sensitivity

Why does securitisation amplify monetary policy transmission? The authors outline a two-step mechanism:

1. Capacity Expansion via Regulatory Capital Relief:

   Securitisation—particularly synthetic securitisation utilizing Significant Risk Transfers (SRTs)—allows banks to shed credit risk and lower risk-weighted assets. This frees up regulatory capital (improving CET1 ratios) and enables banks to expand credit supply far beyond what their balance sheets would otherwise permit.

2. Heightened Investor Sensitivity:

   Unlike traditional retail depositors whose rates adjust sluggishly, the end-buyers of securitised assets are predominantly Non-Bank Financial Institutions (NBFIs)—such as credit funds, asset managers, and insurance companies. These capital market investors rely on wholesale market funding that reprices in real time with central bank rates.

When the central bank tightens monetary policy:

• Capital market investors demand higher returns and experience reduced risk appetite.

• Non-banks rebalance portfolios away from riskier securitised products toward safer assets like covered bonds.

• As investor demand for securitised tranches contracts, banks find it harder and costlier to offload loan risk.

• Lacking the capital relief or market funding they relied on to expand origination, securitising banks are forced to cut back lending more sharply than non-securitising banks.

Key Empirical Findings

To isolate credit supply from firm credit demand, the study utilizes granular loan-level data from the euro area AnaCredit registry covering 2019–2025. The authors pair securitising banks with closely matched non-securitising control banks based on size, capital, liquidity, profitability, and sectoral specialization, applying firm-time fixed effects.

Here are the key takeaways from the data:

• Sharper Credit Contraction: Following a 1 percentage point increase in the policy rate, new lending flows from securitising banks are 6% to 10% lower on average over the subsequent year compared to matched non-securitising banks.

• Immediate Impact: The strongest differential contraction occurs in the first quarter immediately following a rate hike, where securitising banks cut lending flows by ~6.5% more than control banks.

• Contraction in Securitisation Activity: A 1 percentage point increase in policy rates leads to a ~4 percentage point drop in the share of securitised loans relative to total loans within a year.

• Driven by Synthetic SRTs: The amplification effect is overwhelmingly driven by synthetic securitisations (which almost systematically involve SRT capital relief), rather than traditional cash securitisations.

• Targeting Secouritisable Loans: Securitising banks cut credit most aggressively on loan categories most suitable for capital market placement—specifically longer maturity loans (>1 year) and loans extended to safer corporate borrowers.

Real-Economy Impact: Substitution Bottlenecks

Does this extra credit contraction actually affect corporate borrowers, or can firms simply switch to non-securitising banks?

The study finds that corporate borrowing is significantly impacted. Firms with higher exposure to securitising banks experience a greater drop in total credit during rate hikes. They are unable to fully substitute lost loan supply by establishing new bank relationships or expanding existing lines with non-securitising institutions. Consequently, monetary policy rate hikes transmit more forcefully into real economy credit constraints through these banking channels.

Policy Takeaways for Central Banks and Regulators

The findings carry major implications for monetary policy design and financial oversight:

• Potency of Monetary Transmission: As European banks increasingly adopt synthetic securitisations and SRTs to manage balance sheet space, central bank interest rate decisions will transmit to credit markets with greater force and speed.

• Non-Bank Financial Intermediation (NBFI) Linkages: Macroprudential authorities must recognize that securitisation tightly links bank credit supply to market sentiment and liquidity within the non-bank financial sector.

• Procyclicality Risks: While securitisation helps banks expand credit during accommodation, its reliance on cyclical market risk appetite means credit supply can contract rapidly during tightenings, introducing new financial stability dynamics into the euro area financial system.