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The possibility for banks to use asset-backed securities as collateral may have prevented a complete shut down of primary markets, José Manuel González-Páramo, Member of the Executive Board of the ECB said. “However, in the medium term this cannot be an alternative to the restoration of a deep and orderly functioning market which offers true secured funding possibilities.”
He warned that the fact that counterparties post ABSs as collateral with the Eurosystem does by no means imply that those assets are refinanced on a one-to-one basis by the ECB.
The “originate to distribute” banking business model has taken a hit and its survival has been questioned, he outlined and recalled the need to reflect carefully on the model and its increased reliance on secured and off-balance sheet funding.
“However, it is clearly not the end of this business model”, he said. “Since the fundamental business idea behind the model is still valid, hopefully a more sustainable version of it will evolve.”