ECB Member Says ABS Could be Part of the Solution

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.

In a speech entitled “Next steps for European securitisation 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.

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

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 direct 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.

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