European Central Bank’s ABS Purchase Program Unable to Revive European Issuance

In 2014, the European Central Bank (“ECB”) “launched a program to buy up asset-backed securities” in an attempt to encourage issuance of European ABS, according to a report in The Wall Street Journal. This program was “part of measures aimed at injecting around €1 trillion ($1.08 trillion) into the eurozone’s financial system.” The program did not result in more issuance however, “in 2015, sales of European ABS were roughly flat and the cost of issuing securitized debt in southern Europe actually increased”. While the U.S. ABS market is expanding, the “overall size of the European ABS market was on track to decline for the seventh straight year in 2015.”

According to the article, “some analysts and investors have criticized the ECB’s approach and the glacial pace” of the ABS purchases. The program “has been modest, with only €16 billion of ABS bought as of January 22 [2016], or around 7% of the market.” By contrast, the ECB’s “government and quasi-sovereign bond-buying program grew to €530 billion after being launched in March 2015.” Other criticisms of the program is that the ECB is “buying too many securities in safer, Northern European countries, rather than focusing on lowering the funding costs in former trouble spots of Southern Europe, where it is needed most.”

The article does cite one clear benefit of the program, according to Richard Hopkin, Head of Fixed Income and a managing director in the Securitization Division at the Association for Financial Markets in Europe, which is that it has been “very helpful in de-stigmatizing the market.”

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