Wizard idea

12 April 2013 By George Hay, Neil Unmack Follow @gfhay

The central bank has outlined concrete proposals to address the credit drought hitting small businesses in the euro zone. Cutting capital requirements and smoothing the path to a proper SME securitisation market makes sense. The snag is that it still might not make banks lend.

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The European Central Bank does not have a “magic wand” for fixing funding for small and medium-sized companies Benoit Coeure, ECB executive board member, said in a speech in Dublin on April 11, in which he outlined policy responses to the credit crunch affecting small companies.
Coeure said that small companies in the euro zone were paying around 160 basis points more than large companies to borrow from banks in the six months to January 2013, compared with 84 basis points between 2003 and 2008. The spread for companies in Spain and Ireland was 261 and 174 basis points respectively, compared with 50 basis points in Austria and Belgium.
Coeure said the ECB would stand ready to take measures to ensure banks had appropriate access to funds. He also highlighted the need to stimulate lending by lowering the capital charges banks hold against SME loans. Coeure also advocated fostering a market for securitised debt backed by SME loans, including lowering the capital insurers will have to hold against asset-backed debt under the future Solvency 2 regulation.
“It is reasonable to think that simultaneous action on all three counts, by the relevant stakeholders in each case, would be mutually reinforcing,” Coeure said.

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