The ECB eased its rules on what it will accept as collateral for the second time in six months. “The Governing Council has reduced the rating threshold and amended the eligibility requirements for certain asset-backed securities (ABS),” the ECB said in a statement.
Some new items it will now accept as collateral include residential and commercial mortgage backed securities, securities backed by loans to small and medium sized firms, car loans and leasing and consumer finance ABS rated as low as BBB-.
Mortgage backed securities were one of the main problems in financial crisis in 2008. They are hard to value and very complex. The ECB had been tightening the rules governing the use of ABS since the start of the financial crisis in 2008. Before these new changes there was a 16% haircut charged by the ECB for using these types of securities and the minimum quality accepted was A-.
Investors see the easing of lending rules as a good thing as stocks trade higher this morning. The Dow is currently up 66 points, the Nasdaq is up 18 points and the S&P 500 is up 5 points.