ECB Moves to Ease Collateral Rules for Banks

 

The European Central Bank Friday said it had decided to widen the range of securities that it accepts from euro zone banks in exchange for its loans, with the aim of helping boost lending to firms and households.

The ECB’s Governing Council decided to reduce the rating threshold and amend the eligibility requirements for certain asset-backed securities, increasing the pool of securities it accepts from banks at its liquidity operations.

The measure is to come into force once approved in a legal act, the ECB said in a release. The legal act is expected to be adopted June 28, it said.

In addition to the ABSs that are already eligible for use as collateral, the ECB and euro-zone national central banks—known as the Eurosystem—-will also accept certain mortgage-backed securities, auto loans, leasing and consumer finance ABSs with certain discounts, also known as ‘haircuts.’

The loosening of collateral rules will provide a lifeline to struggling banks in Spain, still dealing with the aftermath of that country’s burst property bubble. Spain’s central bank estimated this week that bad debts held by Spanish banks were more than €150 billion ($188 billion) in April, an 18-year high.

Spanish banks need up to €62 billion in new capital to absorb losses in coming years, according to two independent analyses released Thursday that will serve as the basis for a government request for European Union aid to help finance a cleanup of the local sector.

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