ECB to ‘gradually’ Lend Back Government Bonds it Purchases

The European Central Bank will “gradually” start lending out euro zone government bonds it buys in its 1 trillion-euro (722 billion pounds) purchase programme, the ECB said on Thursday.  The move is intended to prevent those lending markets that use the bonds as collateral from drying up when the ECB begins its 60 billion-euro-a-month stimulus plan.

It means that banks or funds that sell the ECB their bonds could in theory rent them back if they need them as collateral or for any other reason.  “The Eurosystem will start to gradually lend securities using the channels for securities lending available under its existing infrastructure,” the ECB said. The lending will be done in a “decentralised manner” by national central banks, it said.

It also laid out a list of European institutions and national agencies whose bonds would be eligible for the ECB to buy alongside the sovereign debt.  On the list were the Council of Europe Development Bank, the European Atomic Energy Community, the European Financial Stability Facility, the European Stability Mechanism, the European Investment Bank, the European Union and the Nordic Investment Bank.


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