ABS Revival Depends on Definitions

Success of European program purchasing asset-backed securities will depend on how regulators define 'simple.'

The European Central Bank (ECB) is gearing up to buy “simple, transparent, and real” asset-backed debt. The success of its bid to breathe life into the market will depend on how regulators from Basel to Brussels define those terms.

President Mario Draghi said last month that ECB purchases of asset-backed securities (ABS) “would lead to a reconstruction of a market that has disappeared with the crisis,” and that’s why they will focus on products that are easy to price. The ECB, whose Governing Council meets this week, may start buying ABS as part of a quantitative-easing (QE) program aimed at shoring up a euro-area economy that’s edging closer to deflation.

The European Commission, the EU’s regulatory arm, wants “securitization products to be part of the toolbox that will unlock additional sources of funding to the real economy, but only in ways that raise no financial stability concerns,” said EU financial-services chief Michel Barnier.

“The first step is to define criteria by which we can identify safe, high-quality securitization structures and products, thereby differentiating between good and bad securitization,” he said.

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