ECB may allow NCBs to purchase private assets, says Goldman Sachs30 July, 2012, 1:26. Posted by Zarathustra
Tags: Euro Crisis
Comments made by the ECB president Mario Draghi last week have been surprisingly bold. With the report that Draghi will be talking to Bundesbank’s Weidmann to persuade the Germans to allow the ECB to buy bonds, it is setting up for potential disappointment should all these not follow through with real action when the ECB Governing Council meets on coming Thursday.
Resuming the SMP has been suggested, and anything less dramatic than that will probably be a disappointment given how hyped the market has been after Draghi’s comments. Longer-term LTROs have also been suggested.
In the previous week, Goldman has noted a number of tools that the ECB still possibly have, each has its own limitation, and some non-standard measures may have some legal obstacles. On the standard measures side, the ECB can cut refinancing rate further, cut the deposit rate from zero to negative, and provide forward guidance for future path of interest rates. On the non-standard measures, the ECB can add more LTROs, change the collateral framework (to increase eligible pool of collateral and change the haircuts), change minimum reserve, asset purchase, and ESM banking license.
Now, they speculate that the ECB may allow National Central Banks to buy private asset assets:
We forecast the announcement of measures to permit NCBs to purchase private-sector assets under their own risk to implement ‘credit easing’, within a general framework approved by the Governing Council. This would allow purchases of unsecured bank debt and corporate debt, enabling NCBs to ease private-sector financial conditions where such support is most needed.