Browsing all articles tagged with credit
May
11

ECB Says Has Tools Left to Act if Required

ECB policymakers said that European Central Bank still has room to plan should the euro zone economy persistent to worsen following it cut interest rates to a new record low previous week. The ECB cut its main rate to 0.5 percent previous Thursday.

Yves Mersch, a member of the ECB’s six-man Executive Board stated the bank still had tools at its disposal, however added that it could only spur lending to small euro zone companies in combination with other European institutions.

Joerg Asmussen stated the ECB had an open mind about what it could do to renew lending to small and medium-sized enterprises known as SMEs a growing concern for the central bank, principally in the crisis-stricken periphery countries.

Mersch said in a panel discussion in the northern German city of Aachen that we still have tools in our toolbox we are not a toothless tiger.

The ECB stated previous week it had set up a task force with the European Investment Bank known as EIB to assess ways to unblock lending to SMEs, for example by supporting a market for asset-backed securities known as ABS based on SME loans. ABS would permit banks to pass some credit risk on to other investors, enabling them up to lend more.

The move to promote ABS is controversial mainly in Germany, because during the financial crisis such securities became toxic due to the default of housing loans that underpinned them.

We have an open mind to seem at all things that we can do within our mandate and this relates to how can the market for asset backed securities, particularly backed by SME loans, be revitalized in Europe.

Asmussen was responding to a question regarding a Wednesday article in German newspaper Die Welt, which cited a central bank source as saying a majority of ECB Governing Council members seemed to be in support of the central bank buying ABSs itself.

May
4

ECB Cuts Interest Rates, Open to Further Action

The European Central Bank cut interest rates for the first time in 10 months on Thursday and held out the likelihood of further policy action to hold up the recession hit euro zone economy.

Responding to a fall in euro zone inflation well below its target level and growing unemployment, the ECB lowered its main rate by a quarter percentage point to a record low 0.50 percent.

Mario Draghi, ECB President promising to provide as much liquidity as euro zone banks require well into coming year and to help smaller companies get access to credit, also indicated that some policymakers had pushed for a bigger cut.

He told a news conference after the ECB’s Governing Council met in Bratislava, there was a very, very strong existing consensus towards an interest rate cut. Within that, there was a prevailing consensus for a cut of only 25 basis points.

The ECB was also technically prepared to cut its deposit rate from the current zero percent into negative territory, meaning it would begin charging banks for holding their money overnight.

Such a move could encourage the banks to lend out money rather than hold it at the ECB, although it would also almost certainly have a big impact on banks own operations and major implications for funding and bond markets.

Draghi said the ECB could cope with these, a departure from his prior statements.

There are several unintentional consequences that may stem from this measure, we will address and cope with these consequences if we make a decision to act. And we will again look at this with an open mind and we placed ready to act if needed.

Acknowledging that, the ECB stated it would prime banks with as much liquidity as they need until at least July 2014 and look at ways to enhance lending to smaller companies, which are the lifeblood of Europe’s economies however have been starved of credit in many countries.