ECB should incentivise banks to buy bonds

THE European Central Bank should draft commercial lenders as allies in its fight to stem the euro-region financial crisis by giving them incentives to buy bonds of debt-swamped governments, Deutsche Bank says.

In his proposed “Plan B,” London-based Deutsche Bank economist Gilles Moec said the ECB would limit collateral for one-year central bank loans to investment-grade sovereign paper rated less than AAA, encouraging purchases of debt sold by Spain, Italy, Portugal and Ireland. He also suggested a “margin-call holiday,” freeing banks from providing more collateral if the value of the swapped bonds falls.

“Investors still don’t know whether to buy from the periphery,” Moec, a former Bank of France official, said in a telephone interview. “But the rates the periphery are paying should be quite tempting so it wouldn’t take much for investors to start buying their debt.”