ECB and BoE Want to Increase Asset Back Securities Liquidity

The European Central Bank and the Bank of England set out proposals on Friday to boost the market for asset-backed securities in the European Union and help the flow of credit to smaller businesses.

The ABS market slumped after the 2008 financial crisis but is now seen as necessary to help build a stronger economy by providing credit to firms that are too small to raise investment funds direct from capital markets.

Problems with U.S. mortgage-backed securities that turned out to be much more risky than their credit ratings suggested were the immediate trigger of the global financial crisis.

But the ECB and the BoE said that the European ABS market had been unfairly tarnished, and that if properly regulated, it could play an important role in supporting business investment.

“Securitization can support greater funding diversification, free up capital to allow banks to extend new credit to the real economy, and provide … insurance companies and pension funds with access to a broader pool of assets,” the BoE said.

Last month the two central banks said public intervention to kick-start the market was needed and accused global regulators of taking too tough a stance on the sector.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza