Why ABS drive will fail, Barclays reckons

Regarding the first goal, it will not be possible if the ECB keeps purchasing the senior section. Furthermore, it is quite probable that the current spreads together with the capital penalties in  current regulations will impede the investment of such assets (after all, the senior section spreads have heavily dropped since the central bank made the announcement.)

With the current regulations penalising the ABS in capital terms, the TLTROs are a more competitive source of financing. However, there is not much demand for them. For Barclays, the key to making the ABS a source of risk transfer is the fact that the ECB can purchase the Mezzanine section (for which it needs or prefers that governments provide a guarantee, which they have refused to do until now.)

Therefore, Barclays believes that the ABSs do not diminish the balance risk of banks, nor do they offer a cheaper financing alternative than, for instance, the TLTRO. Thus, the experts at Barclays see the purchase of governmental bonds as a more prudent choice.

Be that as it may, the big difference between an American or Japanese QE and a European one is that, today, Europe isn’t really a union.