The European Union reached a provisional agreement to overhaul rules governing the bloc’s securitizations markets, a deal that would unleash billions of euros to finance initiatives in key areas such as defense and climate resilience.

Policymakers reached a political-level compromise to push ahead a plan that would allow banks to free up more capital to lend to households, firms and infrastructure projects. The framework would reduce banks’ capital requirements for low-risk deals and reduce administrative burden for market participants. The framework still needs to be finalized and formally endorsed.

“Securitization plays a vital role in our financial ecosystem by freeing up capital and supporting lending,” a representative for the Irish government, which holds the EU’s rotating presidency, said in a statement. “Our objective here is simple: support market revival without compromising financial stability, investor protection or market integrity.”

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The initiative is part of the EU’s savings and investment union, a package of reforms that aims to channel financial assets more efficiently and spur growth by funding key industries. The 27-country bloc is going ahead with reforms to the securitization markets at a time when geopolitical uncertainty, high energy prices, government deficits and worries over the debt-fueled AI boom are pushing up risk premiums across credit markets.

Europe had a total of €1.295 trillion ($1.45 trillion) of securitizations outstanding, including collateralized loan obligations, at the end of March, according to the Association for Financial Markets in Europe. While that figure had grown 6.3 percent in a year, it is still a fraction of the US securitization market.

Boosting the securitization market is part of measures outlined by former European Central Bank President Mario Draghi to increase the bloc’s economic competitiveness. The review of the securitization rules started in 2024.