MNI INTERVIEW2:ECB Has Done Enough For Collateral Squeeze-Lane

European Central Bank moves including its decision earlier this month to raise the limit on its securities lending against cash to EUR250 billion make further measures to ease a potential year-end collateral squeeze unnecessary, ECB chief economist Philip Lane told MNI.

Changes to terms on targeted longer-term refinancing operations and action by the German debt management office will also release collateral back into the system, Lane said in an interview.

“The ECB always has a range of options for how it can manage its liquidity but I think the decisions we made last week will suffice,” he said, when asked about whether the ECB could sell bills or offer a reverse repo facility like that of the Federal Reserves. “Also, we always have to think about the differences between the euro area, which remains very decentralised, and the American financial system. The Fed has a particular approach, but it’s not necessarily the best approach for us.”

The ECB’s move away from bond purchases and increased borrowing by governments will also ease collateral issues, he said. (See MNI INTERVIEW: ECB Bill Sales Would Ease Collateral Drought)