ECB to start ABS scheme

The European Central Bank (ECB) published the legal act for purchases of asset-backed securities, setting it up to start buying the debt as soon as today.

The decision “shall enter into force on the day following its publication on the ECB’s website,” the Frankfurt-based central bank said yesterday.

That’s in line with comments from Executive Board member Yves Mersch, who has said the ECB will start buying ABS this week.

The purchase plan is part of President Mario Draghi’s drive to expand the ECB’s balance sheet by as much as €1tn.

Policy makers are expanding stimulus to stave off the threat of a deflationary spiral of falling prices and households postponing spending, and Draghi has said they’re unanimous in their willingness to take further action such as government-bond purchases if needed.

The institution sought advice from a unit of BlackRock Inc on developing the ABS program.

It hired ING Investment Management, Deutsche Asset & Wealth Management International, State Street Global Advisors and Amundi to carry out the transactions on its behalf under instruction.

ABS purchases will “be implemented in a uniform and, exceptionally during the initial phase, centralized manner,” according to the legal act.

Later in the programme, the assets will be bought in a “decentralized manner by the eurosystem central banks,” it said.

Securities eligible for purchase may include bonds backed by residential or commercial mortgages as long as they fulfill the criteria listed in the legal act, the ECB said.

Banks create ABS by bundling individual loans such as mortgages, auto credit and credit-card debt into tradable bonds.

It may take as many as five days to approve purchases of larger ABS while smaller transactions will be signed off in about 24 hours, people familiar with the matter said last week.



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