LONDON (Reuters) - Banks need to keep trying to wean themselves off central bank support, an ECB policymaker said on Wednesday and called for efforts to revive funding based on asset backed securities.
Peter Praet, one of the European Central Bank’s six Executive Board members, said its crisis measures had put the banking system on a more stable footing.
But “the ECB’s (non-standard) measures can only be temporary solutions,” Praet said at an AFME financial market conference.
“Market participants have to continue their efforts to facilitate the transition to a less central-bank reliant, more market-based financial system.”
Banks have already started repaying the cheap three-year LTRO loans the ECB handed out just over a year ago to help calm the euro sovereign debt crisis and are returning to the markets for financing.
In a sign that confidence is gradually reviving, U.S. money market funds are slowly returning to the euro zone, reopening an important funding source for banks.
The ECB continues to offer banks unlimited loans but has scaled them back to a more standard maximum period of three months.
Praet said the Asset Backed Security funding market would ultimately help medium-sized and smaller firms raise funds.
ABS trading seized up after the often-complicated and hard-to-value financial instruments took much of the blame for the financial crisis that brought down Lehman Brothers in 2008 and hammered the global economy.
The ECB recently introduced new rules requiring banks that use ABS as collateral for its loans provide a full breakdown of what is included in each security bundle.
“A reopening of the ABS market may be one way of enhancing funding conditions for small and medium sized enterprises,” Praet said.
“The regulatory treatment of ABSs, in particular the proposed regulatory capital charges for banks and insurers, could be a factor (in constraining a recovery of the ABS market), as could a lack of secondary market liquidity and the relative opacity of the loans packaged in an ABS.”
He also said the wave of new regulation being introduced in Europe and around the world in the wake of the crisis needed to be monitored carefully and should not be rushed.
“The intended positive effects of regulatory measures have to be carefully weighed against their costs and unintended side effects.”
“The speed of regulatory innovation should not mean that too little consideration is given to the impact one measure will have when taken in conjunction with others. Also, consistency on the international level has to be ensured,” he said.
Reporting by Marc Jones; Editing by Ruth Pitchford