September 18, 2014

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ECB to buy assets it would not accept as collateral

This is in some respect an obvious story, though this version appears a pile of hype to us. We urge readers to treat this with caution. Die Welt reports that the ECB is considering buying ABS which it currently does not accept as collateral. The ECB, of course, will not announce the details of the programme until next month. These are being negotiated right now, a situation that provides a fertile ground for rumours. The newspaper is basing the story on an anonymous source, who says the purpose of the asset purchase programme was different from a repo – the goal is to take risk out of the system –not to protect the central bank in its regulator liquidity policies. The specific purpose of an ABS purchase scheme was to exclude the default risk, the article says.

The article also has details of the specific Franco-German response to the request for state guarantees to cover ECB purchases of mezzanine debt. The joint Franco-German paper said:

"An intervention in the form of a public guarantee scheme would be problematic, because the investors could then rely on the warranty, instead of the transaction and its underlying values not to undergo a thorough examination".

The paper quotes one economists who made the point that the eurosystem may not be prepared for such an exercise because the ECB does not have sufficient control systems. It would have to rely on external ratings – not ideal.

Frankfurter Allgemeine also carries a story similar to this one – but also unsourced.

Reuters and FAZ, meanwhile, write that the publication date for the stress tests will be October 26. 

Our other stories

other stories include a threat by Putin to send Russian troops into several EU countries; a surprise French tax cut; the end of austerity in Ireland; tensions within Pasok, disagreements over Plan B if there is no referendum in Catalonia; revised inflation figures, and the cancellation of a jobs summit.

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