WT: ECB loosens lending rules to ease funding stress
FRANKFURT (Reuters) - The European Central Bank is to start accepting a wider range of collateral in its lending operations and also assets of a lower quality, the bank said on Friday, a move designed specifically with Spain's woes in mind.
"The Governing Council has reduced the rating threshold and amended the eligibility requirements for certain asset-backed securities (ABSs)," the ECB said in a statement after its mid-month meeting that is usually reserved for non-monetary policy issues.
"It has thus broadened the scope of the measures to increase collateral availability which were introduced on 8 December 2011 and which remain applicable."
The changes include moves to accept residential mortgage-backed securities, securities backed by loans to small and medium-sized firms, auto loans, leasing and consumer finance ABSs and commercial mortgages rated as low as 'triple B'.
Haircuts will range from 16 percent for A rated assets to 32 percent for lower rated securities.
Mortgage-backed securities are a form of asset backed security, complex and hard to value financial instruments that were blamed for playing a key role in the financial crisis five years ago.
Up until the end of last year - and in contrast to most forms of collateral - the ECB had been gradually tightening the rules governing the use of ABS since the collapse of Lehman Brothers.
Prior to the changes there was a 16 percent flat rate 'haircut' charged by the ECB for using ABS while the minimum quality accepted was A-.
