The European Central Bank is holding it all together, providing banks with a short-term repurchase facility
The vast majority of new issues in the European capital markets in recent months have been asset-backed securities (ABS) specifically designed to qualify for repurchase agreement ‘repo’ financing with the European Central Bank (ECB). The global credit crunch has virtually halted the refinancing by banks of their loan books through CDOs, CLOs, CMBS, RMBS and other forms of securitisation. Even covered bonds, seen as the safest and most liquid form of ABS, have been severely affected and, in September, despite a history of zero defaults in almost 240 years, new issuance ground to a halt. However, the ECB has offered European regulated credit institutions and European Union (EU) regulated branches of overseas banks the ability to continue to issue securitisations to finance their assets by providing a short-term repurchase facility for bonds that meet certain conditions.
