European policymakers are drawing up plans to revive the market for repackaged debt in a bid to lure investors back to a sector that was at the heart of the worst financial crisis in a generation.

Securitisation is seen as key to helping banks fund themselves and the economy but the market has shrivelled since packages of high-risk US home loans pooled to create bonds imploded in 2007 when the underlying assets proved to be bankrupt.

That caused colossal losses for banks and tarnished securitisation, which has yet to recover in Europe with Nomura estimating the market now to be €650-700 billion, half its pre-crisis size.

Central bankers and regulators have spoken in favour of high quality securitisation for months but with little impact.

The drive has been given a new sense of urgency as the European Central Bank considers plans for quantitative easing (QE) – effectively printing money – by buying assets such as corporate debt.

ECB executive board member Yves Mersch said on Monday the central bank and Bank of England would aim to publish a paper on securitisation at the International Monetary Fund’s Spring meeting in Washington this weekend. However, reviving the market is likely to take many months at least to spur enough new issuance, putting a question mark over how quickly QE could be deployed if deflation took a grip in Europe.

Behind the scenes, the BoE, ECB, the European Commission and the European Insurance and Occupational Pensions Authority have met to agree a common approach to reviving securitisation, a person familiar with the issue said.

The core aim is to split the market in two by creating a category of top quality debt that will benefit from more lenient capital treatment to encourage issuance by banks and purchases by big investors such as insurers.

“We want to get the supply side ready for when the demand is there. It’s up to the market in the end,” the person said.

The rest of the market would likely struggle to survive, the person added, a prospect that is already alarming banks.

Separately, negotiations are already under way in the EU to set a capital charge insurers would have to pay on holding securitised debt at an attractive enough level.

So far efforts to rehabilitate securitisation have focused on residential mortgage backed securities (RMBS), but the high quality category could also include bundled car, credit card and small business loans.

Some policymakers talk of an EU authorised or endorsed credit card whose loans could be bundled into securitised debt.