European banks are issuing
asset-backed securities in massive amounts and pledging them to
the European Central Bank as collateral on its term repo
funding. Since September, more than 50% of European ABS
issuance has been used as ECB collateral. With banks bereft of
other viable funding options pledging so much to the ECB for
repo financing, it will become harder and harder to return
those banks to a normal funding environment. "The ECB will keep
taking collateral," says a eurozone banker. "It will be a long,
hard slog to get out of this."
Around 10% of the ECB repo funding has been absorbed by
Spanish banks. The total securitization issuance by Spanish
banks last year was 143 billion, up 55% on 2006, and none
has been seen on...