ECB open-minded on SME lending but wants others to help

BRUSSELS: The European Central Bank has an open mind on what it could do to spur lending to small- and mid-sized businesses, though other EU institutions might be better placed to help, a top ECB policymaker said on Wednesday.

The ECB is concerned that banks, worried about taking on

risk, are not lending to smaller businesses in the euro zone periphery and that this is starving such companies of funds they need to invest and help their economies grow.

With bank lending clogged up in the periphery, ECB interest rate cuts have only a muted economic impact.

To address the issue, the ECB is looking at ways to revive the market for asset-backed securities (ABS) to allow banks to pass some credit risk on to other investors, freeing them up to lend more while also meeting new regulatory standards.

ECB policymakers have not yet agreed on what do to, or the extent to which they could help revive the ABS market.

German newspaper Die Welt, citing a central bank source, reported in its Wednesday edition that a majority of ECB Governing Council members seemed to be in favour of the central bank buying ABSs itself.

Responding to a question about the Welt story, Asmussen said ECB work on what it could do to spur lending to small- and mid-sized businesses (SMEs) was ongoing.

"We have an open mind to look at all things that we can do within our mandate and this relates to how can the market for asset-backed securities, especially backed by SME loans, be revived in Europe," he told a European Parliament committee.

But the German ECB Executive Board member, generally a more hawkish member of the 23-man Governing Council, said the central bank was studying what it could do but that other EU institutions may be better placed to spur lending to SMEs.

The ECB could help with the provision of liquidity, Asmussen said, adding: "I think we have done a lot here."

"Liquidity is not stopping, preventing banks from lending. It's either lack of capital or an increased risk aversion that prevents them from lending."

"For these two elements, capital and increased risk aversion, it might be more appropriate to other EU institutions, the Commission or the European Investment Bank (EIB) to act. But we will do within our mandate what we can do."