FRANKFURT, April 14 (Reuters) - A senior International Monetary Fund official has backed the European Central Bank’s efforts to encourage trading in asset-backed securities (ABS) in Europe by easing rules for low-risk debt packages.
The ECB and the Bank of England presented a joint paper last week on their initiative to kick-start the shrinking market for packaged debt.
The ECB wants to revive the market as a means of unlocking lending to smaller and mid-sized firms, which form the backbone of the euro zone economy.
ABS got a bad name when some particularly complex securities played a central role in triggering the financial crisis of the late 2000s.
Jose Vinals, director of the IMF’s monetary and capital markets department, said it could now be useful to ease restrictions on less complex securitisation products.
“It could be very helpful to adjust the regulatory treatment so that for safe asset-backed securities, such as those in Europe, risk weights apply that better reflect the low risk compared to the complex structures in the United States,” he told German newspaper Boersen Zeitung in an interview released on Monday.
However, he said the simplicity and transparency of the products should be improved further and added that Europe should not push ahead alone with new regulations.
“I would prefer a global solution,” he said.
Tougher rules were applied to ABS after the crisis, making the assets less attractive for banks to create and hold.
But the ECB argues that European ABS should be assigned more lenient capital treatment because they are different from their more complex U.S. cousins and have a lower default rate. (Writing by Paul Carrel; Editing by Ruth Pitchford)