* Measures to broaden collateral pool in the works-sources
* Firms make large use of current account credit facilities
* Form of lending estimated to account for quarter of total
By Valentina Za and Francesca Landini
MILAN, May 12 The Bank of Italy aims to improve
financing conditions for small businesses through new measures
that would enable domestic banks to use their current account
facilities to secure European Central Bank funding, banking
The small- and medium-sized enterprises (SMEs) that are the
backbone of Italy's economy rely almost exclusively on bank
financing. But loans to firms have shrunk by 71 billion euros
($98 billion) since mid-2011, when Italy was sucked into the
euro zone debt crisis.
They are still contracting, central bank data shows,
impeding the recovery in the euro zone's third-largest economy.
The measures the Bank of Italy is expected to unveil next
month seek to broaden the range of assets banks can use as
collateral against ECB loans.
By targeting current account facilities, which allow small
businesses to borrow up to an agreed amount while they are
waiting for customers to pay them for their goods or services,
the Bank of Italy is trying to channel ECB loans towards small
domestic banks that play a key role in financing small
These facilities were estimated to provide up to 180 billion
euros ($248 billion) in funds to firms last year, one of the
"The new measures could be particularly beneficial to
smaller banks and small firms that make extensive use of these
credit facilities," the source said.
The Bank of Italy declined to comment.
"[It is correct that] that the Bank of Italy is looking at
ways to expand the collateral pool, within the boundaries of the
Eurosystem collateral framework," an ECB spokesman said. "The
ECB and the relevant Eurosystem committee are fully involved."
As part of extraordinary liquidity measures announced in
December 2011 at the height of the euro zone crisis, the ECB has
allowed national central banks to accept additional bank loans
The loans must be performing and the risks of accepting them
remain with national central banks.
Italian banks have 215 billion euros of assets pledged in
exchange for ECB loans. They have another 334 billion euros they
could use to borrow more. These assets, mainly government bonds,
are mostly in the hands of larger banks while the vast majority
of Italy's 684 lenders are small.
The largest 20 banks accounted for 90 percent of total
banking assets at end-2012, think-tank Prometeia calculates.
The planned new rules targets credit facilities allowing
companies to draw from a current account up to an agreed limit.
In order to qualify as collateral with the ECB, the banks
can only use that portion of the credit line firms have drawn
down. And only once they modify the facility according to
guidelines the Bank of Italy will issue.
The key obstacle that makes these credit lines currently
unsuitable as a guarantee for ECB funds is the fact that,
contrary to standard loans, they don't have a set maturity.
However, setting a maturity for the credit lines would weigh
on banks' capital and liquidity ratios, forcing lenders to put
aside more capital against this type of assets.
Regulators are therefore looking at a number of options to
address the problem, the sources said without elaborating.
Banks have been briefed about the upcoming regulatory
changes and are exploring potential benefits, another source
with knowledge of the matter said.
"It is too early to draw any conclusions," the source said.
In a separate initiative, investment banks such as JPMorgan
have looked into ways to allow Italian banks to use
these same credit lines as assets to back debt issues. Also in
this case the main hurdle is the lack of a maturity. JPMorgan
declined to comment.
($1 = 0.7205 Euros)
(Additional reporting by Eva Taylor in Frankfurt. Editing by
Carmel Crimmins and Louise Heavens)