ECB may buy 'simple and transparent' ABS, says Mersch

Wed Jun 11, 2014 5:48pm EDT
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By Paul Day and Huw Jones

BARCELONA Spain/LONDON (Reuters) - The European Central Bank may buy "simple and transparent" asset-backed securities (ABS) to help achieve its target of delivering price stability to the euro zone, ECB Executive Board member Yves Mersch said on Wednesday.

Asset-backed securities are created by banks pooling loans like mortgages or car loans into an interest-bearing bond that is sold to raise funds.

The ECB included the possibility of ABS purchases in a package of measures it announced last week to pump money into the sluggish euro zone economy.

In a speech entitled "Next steps for European securitization markets", Mersch said the ECB wanted a more holistic approach to the regulatory treatment of ABS in Europe and greater transparency of their treatment by ratings agencies.

"There is a growing consensus that an instrument once seen as part of the problem could in fact be part of the solution," he said of talks about ABS in European policymaking circles.

Europe's ABS market has not recovered from the stigma created by the global financial crisis, which was triggered by doubts about the quality of assets in supposedly rock-solid U.S. mortgage-backed securities.

The ECB and the Bank of England aim to get European banks and investors to agree common standards for safer ABS, which could help build a stronger economy by providing credit to firms that are too small to raise investment funds directly from capital markets.

"We have to work in tandem with the markets, see what the market reaction is," Mersch said of ECB preparations to buy ABS.   Continued...

An illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) in the late evening in Frankfurt January 8, 2013. REUTERS/Kai Pfaffenbach