Why Draghi's ABS "Stimulus" Plan Won't Help Europe's Economy | Zero Hedge

Why Draghi's ABS "Stimulus" Plan Won't Help Europe's Economy | Zero Hedge: "We leave it to Bloomberg to conclude...

The ECB initially plans to target the most senior and least-risky segment of the secured bond market. The central bank would only consider buying lower portions, such as the so-called mezzanine part, if governments provide a guarantee, Draghi said.
 
The ECB needs to buy the junior portions of the securities to have the desired effect, said Robert Wakiyama, who manages the $1.4 billion Credit Suisse Lux Global Securitized Bond Fund (CSSIFAB) from Zurich. That’s because banks and insurance companies that buy the bonds have to hold more capital to insure against losses on the junior portions of the securities.
 
“Buying senior ABS bonds is not the solution in our view as it doesn’t take the risk from the banks’ balance sheet,” Wakiyama said. “With the current regulation, banks have to retain the most junior part. As long as the ECB isn’t participating in those bonds, I don’t see either a capital relief for banks or the banks giving more credit to the real economy.”"



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