ECB can accept securities backed by bad loans as collateral, Draghi says

FRANKFURT (Reuters) - The European Central Bank can accept securities backed by non-performing loans (NPL) as collateral from banks, provided that they have a credit rating above a certain threshold, the central bank’s president said on Monday.

Mario Draghi dismissed the prospect, raised by the Italian Treasury, that the ECB could buy asset-backed securities (ABS) based on bad loans as part of its quantitative easing program.

“We’re not talking about buying anything, the question is whether the NPLs in a specific ABS format could be accepted as collateral,” Draghi said.

“The ABS will have to have a minimum second-best rating of single A. Therefore, the inclusion of NPLs in the pool of underlying assets does not preclude these ABSs ... from collateral eligibility.”

Reporting By Francesco Canepa, editing by Larry King