Draghi: ECB Will Accept ABS Backed by NPLs As Collateral

On Monday, February 15th, the President of the European Central Bank (“ECB”), Mario Draghi, presented the ECB’s perspective on economic and monetary development at a European Parliament’s Economic and Monetary Affairs Committee hearing. During his remarks, Draghi stated that the ECB would now accept ABS backed by non-performing loans (“NPL”) as collateral from banks, provided that the ABS has a credit rating above a certain threshold, according to a recent Reuters' article.

During the hearing, the Italian Treasury raised the prospect that the ECB could buy ABS based on bad loans as part of its quantitative easing program, which Draghi dismissed.

We're not talking about buying anything; the question is whether the NPLs in a specific ABS format could be accepted as collateral. The ABS will have to have a minimum second-best rating of single A. Therefore, the inclusion of NPLs in the pool of underlying assets does not preclude these ABSs ... from collateral eligibility.

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