The European Central Bank on Thursday voiced its ?high concern? at growing evidence that banks are exploiting its efforts to unblock the frozen funding markets by using its liquidity scheme to offload more risky assets than it envisaged.
Yves Mersch, a governing council member, said the ECB was now ?looking very hard at whether there is not a specific deterioration of collateral? which the central bank is accepting in return for funds.
He was speaking amid signs of some banks creating low-rated assets specifically so they can be traded for treasuries at the European Central Bank.
The Bank of England recently created a facility for UK banks to access funding for mortgages and the Financial Times has learnt that almost ?90bn ($175bn) worth of bonds are being created to be placed there – almost twice the ?50bn in?itially expected when the scheme was launched only three weeks ago.
Mersch?s comments come as banks, whose main centres of operations are not within the eurozone, are structuring new bonds based on assets other than mortgages in order to gain access to ECB funding. The ECB?s main mortgage-bond exposures so far are believed to be from Spanish, Dutch and some UK deals, but the central bank publishes few details on the collateral it holds.
However, this week Glitnir, the Icelandic bank, is in the process of clearing the use of a euro 890m ($1.37bn) collateralised loan obligation (CLO) for funding at the ECB. Meanwhile, Macquarie Leasing, has done a securitisation of Australian motor loans, which will have a euro-denominated slice so that the investors who buy the deal can use it at the ECB.
?There is moral hazard . . . and we are not in the business of taking over the market,? Mr Mersch said.
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