ABS's potential powerful future ally in Europe
More than half a year into the European Central Bank’s Asset-Backed Securities Purchase Programme, there are some in the market who are dubious about the impact the initiative can have on the European ABS market.
Despite spreads being lower year over year and new entrants deciding to issue, many in the market continue to say the impact of the ECB’s programme has been marginal.
Since April, the ECB has increased its weekly purchases from €5.5bn to €8.6bn this week — about a 56% increase. That is much less than the 165% increase over the same period seen in the public sector purchase
In a market with only €600bn outstanding and sporadic new issuance, the ECB appears to be doing what it can to buy without crowding investors out.
Many argue that without meaningful regulatory change as well as the ECB's purchase programme, new issuance is not likely to blossom. The big obstacle for policymakers and central banks appears to be the complexity of ABS — hence the market’s initiative to certify Prime Collateralised Securities, and projects from the EBA, the central banks, the Basel Committee and others to designate “simple and transparent” securitizations.
But just as important as certification schemes
Familiarity will breed reassurance and comfort about ABS at the ECB, a less tangible, but potentially larger benefit than tighter spreads that tempt more marginal
The ECB has been a monolithic presence in the ABS market before as a repo counterparty, but its purchase programme has involved deeper due diligence and more concerns for
Fernando González, head of risk strategy at the ECB, said in his keynote address to the Global ABS conference that since beginning the programme in November, “the Eurosystem has screened and examined hundreds of transactions, which has built up significant ABS expertise across asset classes, jurisdictions, and vintages”.
That experience could profoundly benefit the future of the ABS market in Europe, as new regulations continue to be discussed and implemented in the coming years.
“This knowledge gained is leading to positive spillovers,” said González. “For example, the
The ECB cannot directly re-regulate securitization, but it is the supervisor for the eurozone’s largest
So, while sovereigns and covered bond issuers can celebrate paying almost nothing to issue while the QE party lasts, ABS issuers and investors alike may have something really meaningful to look forward to: a powerful regulatory figure that actually understands the product.