The European Commission has authorized this Monday that the European Investment Bank (EIB) use a new financial product through its fund created to face the pandemic with the aim of mobilizing up to 13. 000 million euros in investments for small and medium-sized companies hit by the pandemic.
Specifically, the Community Executive has approved the introduction of a new product in the form of guarantees on synthetic securitization tranches charged to the Pan-European Guarantee Fund, which is managed by the EIB and is one of the three safety nets created by the EU at the beginning of the covid pandemic – 19 to ensure liquidity to the community business fabric.
Guarantees to mobilize loans The measure seeks to support SMEs whose activity has been affected by the virus of the 22 Member States which and participate in said fund. Brussels estimates that this new product, endowed with a budget of 1. 400, will mobilize “at least” 13. 000 million euros in new loans.
The EU partners participating in the initiative are Germany, Austria, Belgium, Bulgaria, Croatia, Cyprus, Denmark, Slovakia, Slovenia, Spain, Finland, France, Greece, Ireland, Italy, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal and Sweden.
So far, the EIB has approved a total of 17. 000 million euros in projects under the Pan-European Guarantee Fund, of which it is expected that mobilize some 143. 200 millions. The overall objective of this tool is to channel 200. 000 million in investments with a budget of 25.000 millions .
The new financial product that has been authorized by the European Commission in the form of synthetic certificates seeks that the EIB can achieve the objectives set through this fund to support the real economy during the crisis .
Synthetic securitization allows financial institutions to keep a set of assets (such as a loan portfolio) on their balance sheet and at the same time create tranches with different risk profiles that they transfer by buying protection on said stretch. In this way, the bank remains the owner of the loan, but cedes the default risk to a third party.
In this case, the EIB will be the entity that will offer financial intermediaries protection in the form of guarantee on a risk tranche, although with the condition that the portfolio meets certain requirements. In exchange for this guarantee, the EIB will charge the financial intermediary a subsidized guarantee commission.
For its part, the financial intermediary will have to pass on the financial advantage obtained in this operation to the final beneficiaries of the new instrument, in this case the SMEs that will receive the loans.
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