The ECB commenced its covered bonds purchasing programme last week, but no sooner had it started than rumours surfaced about a new plan to purchase corporate bonds. The fevered speculation demonstrates the lack of confidence in the ECB's existing plan, reviving questions about full-scale QE and its seniority in bond holdings.
ABS purchases to include Greece and Cyprus as ECB reveals latest plan for balance-sheet expansion.
ECB announces operational details of asset-backed securities and covered bond purchase programmes
October 2014 ECB press release
We have to be pragmatic. We need a mixture of local and regional initiatives. Local actors, such as national and development banks, have an important role to play
ECB jumps gun with ABS purchase programme
The European Central Bank’s announcement on Thursday that it would start a private sector purchase programme of both ABS and covered bonds was both widely anticipated and yet still quite shocking.
Market players are hoping Draghi can overcome liquidity and scale challenges in his much-trumpeted ABS purchase plan – seen by some as QE by another name – but if he fails the central bank will have no option but to resort to QE, say analysts.
The biggest difference between QE and this ABS
Draghi wows but market remains fixated on QE
Analysts are divided over the outlook for the euro and the likely potency of the ECB latest monetary-easing measures, after Thursday’s meeting that saw the central bank cutting rates and announcing the October launch of an ABS purchasing programme. While the measures will buoy credit at the front-end, the jury is out on full-scale QE in the coming months.
Europe’s leaders are desperate to kick-start lending to the small and medium-sized businesses that are crucial to the continent’s economic recovery and see asset-backed securities as the key. But the entire sector is constrained by post-financial crisis rules. In an era that will be remembered for the unintended consequences of bank regulation, will the need for SME finance finally unleash Europe’s securitization markets?
The SME funding challenge
Convinced that reviving the moribund securitization market is the best way to channel funding to small and medium size enterprises, the ECB is now championing the financial technique at the centre of the systemic collapse five years ago. Convinced any U-turn is justified to support the small companies that might drive Europe's economic recovery, the ECB now finds itself at war with regulators still determined to clamp down hard on securitization.
Without new regulation, the ECB plan to buy ABS risks becoming another funding tool, without capital relief
SME finance: Weak loan demand is the real problem, say banks
In November, the European Central Bank published the findings of its latest survey of SMEs in the euro area. It contacted over 8,000 firms, the vast majority with fewer than 250 employees, and concluded with the headline that the dominant concerns for these companies was finding customers and access to finance.
|Securitization: Bankers question merits of EIB’s SME solution|
Europe’s policymakers hope a new programme to facilitate securitization will help set free lending to small and medium-sized enterprises. But ABS specialists doubt the initiative will work – and if it is needed at all.
In an exclusive interview, Benoît Coeuré, member of the executive board of the European Central Bank, discusses the challenges that Europe faces in stimulating financing to small and medium-sized enterprises, including the creation of a truly pan-European and cross-border capital market in the region and how securitization can be used to re-establish funding to these firms.