Mersch Says ECB Alone Can’t Boost Business Lending Through ABS

European Central Bank Executive Board member Yves Mersch signaled that policy makers are relying on other institutions to rekindle the market for asset-backed securities in a bid to bolster lending to small companies.

While the ECB has contributed to the revival of the securitization market by adjusting its collateral rules and increasing transparency, a single European solution to increase the use of ABS to finance the economy may also need efforts by the European Commission and national development banks, Mersch said in a speech in Munich today.

ECB President Mario Draghi has identified Europe’s sluggish ABS market as one reason for lethargic bank lending and raised expectations of a purchase program earlier this year. While he told reporters yesterday that policy makers haven’t shelved plans for such a measure, he said regulatory and legislative changes are needed to bolster the use of ABS across the region.

“As necessary and welcome national measures are, for a single market we need single solutions,” Mersch said. “After all, financing conditions of a company, also of a small one, in a single market should depend on its creditworthiness and not on its location within that single market.”

Supporting SMEs

Mersch said he considers supportive measures for small and medium-sized enterprises “appropriate” and cited a paper on SME lending and infrastructure published last year that suggests the European Commission and the corporate sector should develop a consolidated data base on small enterprises’ credit risk.

“And why shouldn’t the national development banks work closer together and become active across borders?” he said. “In some cases, that would require an adaptation of the statutes of these development banks. In the interest of an improved integration of the European market, I consider this a good idea.”

The ECB’s bank balance-sheet probe and deleveraging in anticipation of the results hasn’t significantly affected credit supply in the euro area at an aggregate level, Mersch said. The second stage of the analysis, the Asset Quality Review, is currently under way. The third stage will be a stress test that gauge how well lenders can cope with an economic or financial downturn.

“It is important to operate on a level playing field,” Mersch said. “In that respect, the stress test, which follows the balance-sheet test, isn’t watered down by national interests. That means that prudential filters, especially for sovereign bonds, are used uniformly and aren’t subject to the discretion of national supervisory authorities.”

Prudential filters are nationally-regulated measures whereby banks can avoid booking losses when the value of bonds held in available-for-sale portfolios falls.

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