ECB Considers Retained Bonds as Source for ABS Purchase ProgramAlastair Marsh
The European Central Bank is considering using the more than 300 billion euros ($384 billion) of asset-backed bonds created and retained by banks during the financial crisis for its plans to boost the region’s economy.
ECB President Mario Draghi told lawmakers in Brussels the bank may buy a wide range of “simple and transparent” ABS, with eligible securities including those held in investors’ portfolios and those retained by issuers. During the crisis lenders created and retained bonds to use as collateral for central bank funding.
Draghi is scouring the market for assets as he prepares an asset-purchase program to stimulate lending in Europe’s ailing economy. The 1.2 trillion-euro market for ABS, the lynchpin of Draghi’s stimulus plan, has contracted more than 40 percent since 2010 and new issues of the debt are the least since 2009.
“It makes perfect sense to buy retained deals,” said Alexander Batchvarov, head of structured finance research at Bank of America Corp. in London. “This way the ECB could prevent investors being crowded out in what is a small primary market for ABS, and it will also take the bonds off the banks so they can lend more.”
All of the 308 billion euros of ABS issued in Europe in 2006 was sold to investors, while 58 percent of issuance was retained in 2013, according to JPMorgan Chase & Co.