FRANKFURT The European Central Bank alone cannot revive lending to small and medium-sized enterprises (SMEs), which make up the vast bulk of the euro zone economy, ECB policymaker Benoit Coeure said on Thursday, calling for more support from banks and governments.
The ECB is particularly concerned about weakening lending to SMEs, which Coeure said made up about 98 percent of all euro zone companies and employed around three-quarters of the bloc's employees. It is studying ways to improve the situation.
But the central bank does not want to act alone. Coeure called for more support from governments and supranational institutions like the European Investment Bank, as well as deeper access to capital markets for companies.
"The ECB does not have a magic wand," said the Frenchman, a member of the ECB's six-man Executive Board member, the group that forms the nucleus of the policymaking Governing Council.
"The ECB has taken and will continue to take appropriate measures to ensure that bank funding is not a source of financial fragmentation or an impediment to bank lending," he added in remarks prepared for a conference ahead of a European finance officials' meeting in Dublin.
But it could not compensate for a shortage or misallocation of equity, and neither could it alter the credit risks of individual borrowers, which had to be addressed by other stakeholders and governments, Coeure said.
He suggested giving smaller and medium-sized businesses better access to capital markets and a wider use of ratings for such firms. He also called for market innovations such as asset-backed securities where the underlying assets are loans to SMEs.
"The ECB will provide ample liquidity as long as needed, but market participants have to continue their efforts to facilitate the transition to a less central bank-reliant, more market-based financial system," Coeure said.
(Reporting By Eva Kuehnen; Editing by Hugh Lawson)