In an article quoting PCS, Bloomberg reported that the German and French governments have expressed doubts about the provision of guarantees to mezzanine tranches to allow their purchase by the ECB. In the absence of such guarantees, PCS has expressed the view (reflected in the article) that the ECB's ABSPP may still create additional issuance by its possible effect on spreads. We have long argued, as have many others, that a pure funding solution which does not address banks' needs to reduce their capital usage for new lending will be unlikely to generate much new flows of funds to the the economy. De-consolidating securitisations which provide some capital relief can do this. We believe the ABSPP can do this either by buying guaranteed mezzanine that provides some capital relief or by causing spreads to come in on senior notes it purchases. If these spreads come in sufficiently, the economics of the whole transaction may change sufficiently that a capital freeing securitisation becomes possible and even attractive.
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