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ECB moves to help region's businesses get loans

ECB moves to help region's businesses get loans
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The European Central Bank has said it will ease the rules on what it will accept as collateral from banks.

The thinking behind that is the banks will be able to borrow more from the ECB and lend that money on to businesses to boost economic growth.

The ECB has said it will now accept lower grade so-called asset-backed securities (ABS).

ABS – which are assets like loans bundled up together – are the kind of investment instruments which were blamed for causing the financial crisis in 2007/2008.

At that time those securities included things like substantially over-valued sub-prime mortgages.

The European Central Bank will only take the simplest and safest such securities as collateral, known as “plain vanilla”.

In theory the move offers hope for small- and medium-sized enterprises (SMEs) that banks will have more funds with which to offer them loans. But it unlikely to be a game changer for these businesses, many of which are cash-strapped and struggling to grow.

Several economists described it as a small step, but did not think it would make much difference to lending levels to businesses.

RBS economist Richard Barwell said: “We can get a little bit more positive on the prospects of a positive solution to the SME problem. But still the key to solving that problem must be fixing the banks.”