Exclusive: ECB debating ABS, covered bond purchase plan

Reuters
European Central Bank President Draghi speaks during the bank's monthly news conference in Frankfurt
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European Central Bank (ECB) President Mario Draghi speaks during the bank's monthly news conference in Frankfurt August 7, 2014. REUTERS/Ralph Orlowski

(Reuters) - Plans to launch an asset-backed securities (ABS) and covered bond purchase programme worth up to 500 billion euros are on the table at Thursday's European Central Bank policy meeting, people familiar with the discussions say.

ECB President Mario Draghi will likely announce such a programme at his news conference unless it comes up against strong opposition at the Governing Council's policy meeting.

The programme would have a duration of three years and comprise both ABS and covered bond purchases. The ECB could begin buying the assets this year, the people familiar with the discussions told Reuters.

The ECB declined to comment.

European stocks rose in response to the report, erasing earlier losses. The euro fell to a session low of $1.31195. (MKTS/GLOB)

ECB President Mario Draghi said in Jackson Hole on Aug. 22 that the ECB's preparations for an ABS purchase programme were "fast moving forward and we expect that it should contribute to further credit easing".

The ECB has been developing such a programme with a view to stimulating the ABS market and offering smaller businesses an alternative source of funding.

Bankers and regulators have cast doubt on reviving Europe's repackaged debt market to fund economic recovery, saying it will take years and hinge on a re-invention of the sector rather than quick regulatory tweaks.

However, the market for covered bonds in issuance, such as Pfandbriefe in Germany, is more substantial.

Asset-backed securities are created by banks pooling mortgages and corporate, auto or credit card loans and selling them to insurers, pension funds or even the ECB.

Covered bonds are similar instruments but the underlying assets are ringfenced on the issuer's balance sheet so if the bank goes bust, the assets are still there. That makes them safer than ABS where the underlying loans are not ringfenced.

ECB Executive Board member Benoit Coeure said last month that European governments may have to support Europe's market for securitised debt by issuing guarantees to make it a successful alternative source of funding to bank loans.

(Editing by Mike Peacock)

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