ACCA welcomes new ECB measures 

The European Central Bank (ECB) has unveiled a package supporting lending to the real economy in the Eurozone, a move strongly welcomed by ACCA (the Association of Chartered Certified Accountants)

The ECB measures entail proposals to conduct targeted longer-term refinancing operations (TLTROs) aimed at improving bank lending to the non-financial private sector in the Eurozone, excluding loans to households for house purchases over a window of two years, and to intensify preparatory work related to outright purchases of asset-backed securities (ABS).

Emmanouil Schizas, senior economist at ACCA says: ‘The ECB proposals are in the same vein as the UK Funding for Lending scheme, which offers banks cheap medium-term liquidity proportionate to their levels of lending to the real economy. ACCA has strongly supported this sort of policy in the UK, but only since it was weighted in favour of SMEs and had clearly excluded mortgages. We are now welcoming the application of the same principle to the Eurozone, and expect that it will lead to a revival in lending in peripheral countries in particular, where banks still face liquidity issues.’

‘In the long run, the ECB should look into this kind of intervention as a permanent means of introducing flexibility to Euro-area monetary policy. A single interest rate may not always fit all Eurozone countries, especially during a two- or three- speed recovery, but if it is complemented by targeted liquidity measures, the imbalances could be less pronounced. Of course, conditional liquidity works best where, and while the banking sector remains under stress. This implies that the new mechanism should be accompanied by strict monitoring to ensure it does not encourage a vicious cycle of dependence on cheap liquidity, irresponsible lending, and further dependence,’ Emmanouil Schizas explains.

ACCA also has a strong interest in the ECB’s plans to buy asset backed securities (ABS) backed by SME loans.

‘Combined with the EIB’s [European Investment Bank] new SME ABS initiative, whereby the EIB invests in similar assets, this could help revive the securitisation market in Europe, a goal which ACCA strongly supports. We have seen gradual moves by central banks towards this end and have strongly supported instruments, such as the Prime Collateralised Obligations (PCO) label, which can help restore faith in this market through increased transparency,’ Emmanouil Schizas concludes.

 

Source: accaglobal

---