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Small and medium-sized businesses that form the backbone of the Spanish and Italian economies have seen their borrowing costs rise to unaffordable levels during the crisis while interest rates charged to their German counterparts are near record lows, reflecting the ECB’s rates.
But the ECB’s review of the problem suggests that the blockage in lending is the result of weakened bank balance sheets and would not warrant direct intervention in the SME borrowing process by the central bank. The ECB has already announced that it is working with the European Investment Bank to devise ways of broadening the access to financing for SMEs by reviving a market for asset backed securities.
The asset quality review would start in September or October, providing the necessary legislation has been passed by the European parliament. Acting as the so-called single supervisory mechanism, the ECB would oversee an ambitious trawl through 140 of the eurozone’s biggest banks’ balance sheets.
The shift in thinking on the causes for the SME credit crunch puts the ECB closer to the view of Germany’s Bundesbank, which has long expressed deep scepticism about the role of any central bank in helping small businesses access financing, for fear of disrupting the market and promoting the misallocation of bank lending resources.
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