Draghi says ECB is considering buying asset-backed securities to support lending to companies

European Central Bank president Mario Draghi said the ECB is considering buying asset-backed securities (ABS) among possible options to support lending to small and medium-sized companies.

“We looked at a variety of things, one of which was this ABS,” Draghi told reporters yesterday after a Group of Seven meeting of finance chiefs in Aylesbury, near London. “We’re still looking at that, it’s one of the many options. We don’t have a position, certainly, on that.”

The ECB is keen to rally lending at banks, which account for about 80 per cent of corporate financing in the euro area, compared with less than 20 per cent in the United States. Lending to households and companies in the region contracted for an 11th month in March, and small and medium-sized companies, which account for the bulk of employment in Italy and Spain, have been particular victims.

“On the lending side, we see that the situation is still tight, especially in the periphery, but not exclusively,” Draghi said. Still, “the situation is in a sense getting less bad,” he said. “In other words it’s still tight, but it’s less tight than it used to be.”

ECB executive board member Joerg Asmussen said on May 8th that the central bank has discussed ABS purchases, while his fellow board member Yves Mersch said the same day that it was “looking at ways to restart the ABS market”.

Acquisitions in the ABS market are “not easy for the ECB to do because we’re in a completely different set-up from the US, where you have a capital market,” Draghi said yesterday. “So the ABS in this case would have to contain assets from the banking system of the euro system and you can understand what sort of moral hazard there is there.”

German finance minister Wolfgang Schäuble criticised Draghi's plan to help some euro-area states by offering to buy securitized debt, Der Spiegel reported today, citing unnamed people who heard Schäuble comment at a government meeting on May 8th.

Schäuble said the ECB assuming 70 billion euro of Italian debt would amount to veiled state financing in violation of EU rules, according to Spiegel . Last month, the ECB governing council tasked technical committees at the central bank to investigate ways to stimulate lending to small and medium-sized businesses.

The ECB’s role in this is “going to be mostly catalytic because the ECB works with the EIB, with the commission,” Draghi said, referring to the European Investment Bank and the European Commission. “It’s going to be very much up to these actors to act, rather than the ECB. So European Commission, the EIB and national governments.” – (Bloomberg)