Surprise, surprise: the European Central Bank (ECB) has given banks extra time to prepare loan-level data for its new ABS data warehouse. The ECB’s timeframe always seemed too hasty for the smaller banks that use ABS as collateral for repo, so the delay comes as no shock to market participants.
But the bigger flaw is that the ECB’s threat — that it would invalidate repo eligibility in the event of non-compliance — is hollow.
Loan-level data was due to be mandatory from December 1 2012 for RMBS, and from January 3 2013 for CMBS and SME-backed securitisations. On Tuesday the ECB put back the dates to January 3 for RMBS and March 1 for CMBS; the date for SME ABS remains unchanged at January 3. Banks will have nine months from these dates to ensure their data are fully complete.
When the original timeframe was unveiled at the Global ABS conference in Brussels in June, many attendees scoffed at the idea of banks getting their data submitted on time. Some noted that even the mighty RBS, with all its resources and manpower, took three years to identify fully the underlying loans on its balance sheet before it could delever.
It's even worse in countries like Spain, where banks have been involved in systemic restructurings designed to create larger, less vulnerable institutions. It will take time for those new entities to fully account for the inherited loan books, let alone have them ready for the ECB by the start of next year.
In theory, the consequence of not submitting data in accordance with the standardised templates is loss of repo eligibility, a crucial source of funding for banks that have limited access to public markets. And not only is this for forthcoming deals — it also applies to ABS collateral that has already been used for repo. Clearly, banks that want to use that paper for ECB liquidity have no choice but to work towards submitting data.
But there is no way the ECB, or its data warehouse designer and partner Sapient Global Markets, can monitor the accuracy of that data. As long as the standardised forms are fully filled out, banks have technically met the ECB’s requirements. This raises the prospect of greater transparency without greater accuracy, which is of no use to the ECB or to ABS investors — purportedly the other beneficiaries of the project.
The reality is that as long as banks can show they are at least working towards compliance, the ECB is unlikely to use its weapon of last resort and remove repo eligibility. Such a move would hurt the very institutions it is mandated to help, and the loss of liquidity for Europe’s most vulnerable banks could reignite eurozone panic.
After helping to put out fires in the eurosystem for the past few years, the central bank is loth to be the source of another conflagration. It has got used to being flexible over the past couple of years: a bit more flexibility won't be hard to find.