ECB Considering Loosening the Loan Leash a Little

The European Central Bank is reported to be considering loosening collateral criteria, allowing more uncovered bonds as collateral. According to

, three euro-area officials with knowledge of policy makers' deliberations are making the claims. “The ECB is focusing on getting banks lending again rather than increasing its government bond purchases to fight Europe's debt crisis,” the article states. “The central bank's insistence that governments take measures to restore investor confidence appears to have paid dividends, with Italian and Spanish yields plunging after Germany and France agreed to move the 17-nation euro area toward a fiscal union.” It does seem to make sense to broaden the pool of eligible collateral for ECB loans and, on Wednesday morning, stock futures were moving higher following the news. According to Bloomberg, Officials said that they may also increase the amount of uncovered bank bonds that can constitute a lender's collateral portfolio. “One official said longer-term loans might encourage banks to lend to companies and households, and they would also help financial institutions meet new Basel rules on holding longer- term liquidity,” Bloomberg said.

said that, “The action is in response to tighter credit conditions for banks. IF banks do not lend to each other, the banks can not fund the assets they hold. The ECB is saying, bring me your collateral and I will give you money that the banks are not willing to give you. Banks are being conservative/cautious/prudent in there lending given the uncertainty and risk. The ECB is considering filling that void.”