FRANKFURT Aug 27 European governments must support Europe's market for securitised debt by issuing guarantees to make it a successful alternative source of funding to bank loans, European Central Bank Executive Board member Benoit Coeure said.
"Europe is facing a very fundamental choice if it wants to move to an ABS (asset-backed securities) market that is as deep and liquid as the U.S. market," Coeure told Risk magazine in an interview, excerpts of which were released on Wednesday.
"To reach this goal, the securitisation market will require a significantly different amount of public sponsoring than is currently the case."
Securitised debt based on poor quality U.S. mortgages became untradable in 2007, unleashing a chain of events that led to the global markets meltdown, with taxpayers having to rescue banks that had chunks of the debt on their books.
Since then, the market has failed to recover in Europe in particular, a region which depends heavily on banks for funding the economy at a time when they are focusing more on boosting their capital buffers than granting loans.
The ECB and the Bank of England are trying to kick-start top quality securitisation and encourage investors to return, while also calling for more lenient regulation of high-quality assets.
The ECB itself is working on a programme to boost the market for ABS, with which it wants to unblock lending particularly to small and medium-sized companies that form the backbone of the euro zone economy.
ECB President Mario Draghi said at an annual central banker gathering in Jackson Hole on Friday that the ECB's preparations for outright purchases in the ABS markets were "fast moving forward", expecting it to contribute to further credit easing.
A stronger involvement of government guarantees, for example through the European Investment Bank or German state-controlled development bank KfW, would help deepen the market that has almost completely dried up since the financial crisis.
"This is obviously not a decision that falls under the remit of the ECB because this is not our money and, at the end of the day, it's shifting risk to public balance sheets. So it has to be a political decision," Coeure was quoted as saying.
"It can deliver economic benefits but would have to be explained to lawmakers and taxpayers." (Reporting by Eva Taylor and Paul Carrel; Editing by Hugh Lawson)