ECB: Update on Intensive Preparatory work on ABS Purchases

As expected the European Central Bank (ECB) made no change to monetary policy, with Draghi reiterating the usual spiel that monetary policy will remain accommodative, inflation expectations remain in check and of course the Governing Council is “unanimous in its commitment to also use unconventional measures, like ABS, like QE”. It was in June that Draghi first told us that the ECB was “intensifying preparatory work for outright purchases in the ABS (asset backed securities) market”. It has clearly been a busy few months for the “various committees of the ECB” working on this. Their initial conclusion? They cannot do it alone and are hiring a consultant “to help design this programme in the best possible fashion”.

So it seems it is time for the financial “engineers” who orchestrated the mess to come to the rescue and unblock the banking channel that is impairing the ECB’s monetary policy transmission mechanism and hence the economic recovery. In a market environment driven by the reach for yield, it is noteworthy that the major financial market participants have not already moved to revive the ABS market. The issue has to be price and the true value of some of the loans the European banks are sitting on, hence the need for the financial engineers!