The ECB says it has revised collateral rules and will accept a broader range of asset-backed securities, according to a statement. They say the moves will have an neutral impact of the overall collateral available and will help invigorate lending to small and medium-sized businesses… they say.
In a sterling example of double talk, the press release starts out by saying:
The Governing Council of the European Central Bank decided to further strengthen its risk control framework.
In reality, the new rules allow them to accept ABS with two A ratings compared to two AAA rating before. They will also investigate further measures including accepting mezzanine (lowest) tranches of structured ABS.
What could possibly go wrong? In the credit crisis, firms had an incentive to create mezzanine tranche garbage because the idiot ratings agencies would stamp whatever letters you wanted on it. The suckers (largely AIG) were buying it up and the system crashed. This time the suckers are the ECB.
