* ECB and 6 central banks launch cash-for-bond scheme
* Lending against cash capped at 50 bln euro cap
* Lending rate set at -0.70 bps or lower
By Francesco Canepa
FRANKFURT, Dec 8 The European Central Bank will
start accepting cash rather than just bonds as collateral for
lending out some of its huge pile of government debt, it said on
Thursday, to ease stress in a key short-term funding market.
The ECB's purchases of 1.2 trillion euros worth of
government bonds, aimed at boosting the economy, have inundated
the euro zone's financial system with cash.
But they have also deprived it of high-quality government
bonds, the most used collateral for repurchase agreements, which
are vital to finance trading and transmitting the ECB's stimulus
to the euro zone's struggling economy.
Thursday's decision, which confirms an exclusive report from
Reuters last month, is aimed at making it easier for banks to
borrow some of the government debt the ECB has bought.
By doing so, the ECB hopes to oil the repo market, where
financial firms lend to each other against collateral.
The ECB and the Bundesbank own more than a quarter of all
German government debt, the most coveted collateral for repo.
Funds pay up to 1.5 percent to borrow a 10-year Bund, up from
some 0.40 percent a year ago, according to Icap data.
Apart from the ECB, the central banks of France, Spain,
Belgium, the Netherlands, Ireland and, crucially, Germany will
take part in the new cash-for-bonds scheme, which will start on
The devil might be in the detail. First, only 50 billion
euros out of the total 1.2 trillion euros will be available for
lending against cash.
Second, the bonds will be offered at a rate of at least -70
basis points against cash, seen by some in the market as
"50 billion euros is not that big," Peter Schaffrik, chief
European macro strategist at RBC Capital Markets.
"If you look at the rate they make it available at, it's
relatively expensive and it should not really allow general
collateral to become much cheaper."
(Reporting by Francesco Canepa; Editing by Tom Heneghan)