Bloomberg News

ECB Said to Consider Increasing Loans for Collateral Disclosure

October 20, 2011

Oct. 20 (Bloomberg) -- The European Central Bank is considering lending more money against asset-backed securities where issuers provide additional information about the loans securing the bonds, said a person familiar with the matter.

Banks can borrow money from the ECB’s liquidity facility by posting collateral with a discount applied depending on its perceived safety. The bank’s Eurosystem Risk Management Committee is discussing lowering the reduction on asset-backed bonds from the 16 percent levied now, said the person, who declined to be identified because the talks are private.

The proposed change is part of a broader ECB initiative to encourage banks to improve transparency in asset-backed bonds they sell to investors and boost confidence in a market blamed for worsening the credit crisis in 2007. The Frankfurt-based lender also said in April 2010 that it was seeking ways to control the quality of the assets it takes in as collateral for loans to financial institutions.

“The ECB loan-level data project will enhance transparency and standardization on the collateral, so that’s welcome,” said Paolo Binarelli, a fund manager at P&G SGR Alternative Investments SpA in Rome, which oversees 1 billion euros ($1.4 billion) of assets. “The key point is that the cost of disclosing that information mustn’t be too high.”

Niels Buenemann, a spokesman for the ECB in Frankfurt, declined to comment.

The ECB committee will decide on the reduced discounts for loan collateral at a meeting in November, after which the board will discuss the plan, said the person with knowledge of the talks. The central bank already aims to solicit more information about the underlying loans packaged into bonds, and the lower discounts would be given in return for an additional level of disclosure on top of that, the person said.

The ECB is planning a series of presentations about the loan-level data program as a whole starting in Paris tomorrow, according to its website.

--With assistance from Emma Ross-Thomas in Madrid. Editors: Paul Armstrong, Andrew Reierson

To contact the reporters on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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