The European Central Bank (ECB) is considering three measures to promote the refinancing of banks and, as a consequence, businesses as well.
More securitized products
1- Allow the banks under the ECB to offer more securitized products to their clients who borrow foreign currency (in this case the euro). The idea is to lower the credit note required on financial products such as Asset-Backed Securities(ABS) (i.e. automobile loans, outstanding debtors). This will allow the banks to fund themselves more easily and to inject money into their domestic markets. However, the move is not designed to leave free rein to libertarian derivatives because only the most transparent products will be accepted.
Financial products: less commission, more choice
2- Reduce the premium on assets: take less money from banks that bring securities to the table; thereby increasing their liquidity ratio.
3- Allow the banks to make group loans to SMEs with low risk profiles.
With the funding difficulties that began with the confidence crisis on the heels of the financial crisis, the mobilization of receivables has undergone a real boom; also, in the current context of more stringent banking conditions, the move is a “breath of fresh air” for the banks which should, in the wake, facilitate the procedures for granting loans to SMEs.
What is securitization anyway?
Securitization is a process of financial engineering which aims to sell a pool of assets by offering it to investors through an investment bank.
The characteristics of the securities issued depends on the nature and quality of the credits as well as the credit ratings.