Wednesday, April 25, 2012

Tidbits from ECB Annual Report #2 (Collateral again)

Compare this new chart and the one I posted before (reposting).  As a way of determining where the market thinks ECB repo as a subsidy it might be instructive to compare the overall eligible collateral by asset type (chart 32) with the actual percentages posted at the ECB (chart 34).

For example, let's look at non marketable assets.  The ECB does not provide data behind the tables, so we'll have to do a rough estimate.  Non-marketable assets are made up of credit claims, non-marketable retail mortgage backed debt instruments (Ireland only), & fixed-term deposits. (see section here).  The ECB says that non-marketable assets are "mostly credit claims".  If you compare the rough percentage of credit claims as a percentage of "eligible collateral" with the percentage breakdown of assets actually posted it seems that the ECB must be offering a pretty good deal with respect to financing of credit claims.  A few things to consider:
1) The ECB does charge high haircuts on credit claims (can be found in document linked above and according to M. Draghi the average haircut on new credit claims accepted was 53%).
2) The ECB admits it has a hard time estimating the amount of eligible credit claims so its possible/likely the amount is bigger than their graphics show.

Nevertheless, the data does demonstrate that the ECB's acceptance of credit claims for repo must somehow present an advantage vs. the private market.  Whether this is due to lower haircuts, lower rates, perhaps easy credit scoring offered by NCB's making the procedural aspects of actually pledging whole loans easier, is unclear.

I did post earlier some time ago about subsidies that are easier to observe - as of late 2011 those included sovereign debt in the periphery (especially Portugal but also Italy and Spain).

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