Purchases of “covered bonds” – debt backed by pools of assets favoured by some institutional investors – have so far totalled less than €9 billion. The scheme started last November and was originally intended to run until October at the latest.
The shortfall largely reflects improved market conditions, but comes amid discussions at the ECB over an “exit strategy” by which the central bank would wean eurozone banks off its exceptional financial support.
Ending the covered bond purchases, or scaling back their scope, would signal that the ECB was determined to return to more conventional monetary policy tools as soon as possible. The programme predates the ECB’s exceptional offers of unlimited three-year loans in December and February, when it injected more than €1 trillion into the eurozone banking system.
In recent weeks, Mario Draghi, who took over as president on November 1, has suspended the ECB’s controversial government bond purchasing programme, which was opposed by Germany’s Bundesbank.
Subsequent steps in an exit strategy could include the ECB mopping up excess liquidity from the eurozone financial system by taking deposits from banks or issuing bills. It could also raise borrowing costs by increasing its main policy interest rate or by driving up market interest rates. The eventual aim would be to return to the pre-crisis system of auctioning liquidity, rather than meeting in full banks’ demands.
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