Bank of France Touts Securitization Plan as Template for ECB

The Bank of France wants to help banks package loans to businesses into tradable securities with the creation of a special-purpose vehicles, in what could become a template for the euro area.

As the European Central Bank looks for ways to improve the flow of credit to small and medium-sized enterprises, or SMEs, the project started by the French central bank in July last year could provide one possible solution, the head of its markets division, Alexandre Gautier, said in a telephone interview.

He’s in talks with the Frankfurt-based ECB and other national central banks on the initiative, which would ideally create securities that qualify as collateral in ECB refinancing operations. While banks can currently securitize SME loans and use them as collateral at the ECB, the process is complicated and not centralized.

“We want a vehicle that is super simple and super transparent,” Gautier said. “We’d very much like these securities to be eligible in the euro system, but it’s not a condition. We’ll go ahead on our own if we have to to show that it’s doable.”

The Bank of France project involves the creation of a private company to pool existing loans to SMEs and then issue new securities that can be traded. Current plans are for the participating banks to own equal shares in the company and for the first such entity to issue five-year bonds.


The aim is to make it easier for banks to re-finance existing loans and incentivize them to extend credit to small businesses. That would especially be the case if the new securities were eligible as collateral with the ECB, said Gautier.

“The banks were very interested but they said that to make it really attractive, any securities should be eligible as collateral for refinancing within the euro system so that they would be liquid in the event of a crisis,” he said. “That’s now what we’re aiming for.”

ECB President Mario Draghi said on May 2 that policy makers will start consultations with other European institutions on initiatives to promote lending to SMEs in the euro area using asset-backed securities.

Gautier aims to have the French program up and running by the third quarter.

He said the Bank of France would prefer the securities to be rated by internal central bank systems or the Internal Ratings-Based approach used by private lenders under the aegis of the Bank for International Settlements.

“We’d like to reduce dependence on the ratings agencies, but it’s not necessarily easy,” he said.

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