As the turmoil in global financial markets continues to affect financial institutions around the world, it is increasingly evident that the asset repurchase facilities provided by central banks have become a lifeline for banks struggling to raise capital in the current climate. In a market devoid of its traditional investor base, originators and arrangers of securitization transactions within the Eurozone have come to rely heavily on the European Central Bank's (ECB) asset repurchase or "repo" facility which allows (among other assets) ABS to be used as collateral for funding.
In contrast to the various U.S. facilities designed to restart the U.S. securitization market, the ECB facility is intended to allow financial institution holders of ABS access to short-term finance at (until recently) attractive rates, and has led increasing numbers of originators to structure, issue and retain their "own-name" ABS specifically for the purpose of accessing the ECB's repo facility. Unsurprisingly, originators have flocked to the ECB in droves with newly-issued ABS over the past two years as funding conditions have deteriorated, creating a de facto "lender of first resort" position for the ECB within Europe. This heavy reliance on the ECB's repo facility has inevitably led to a gradual tightening over the past eighteen months of the criteria by which the ECB assesses the eligibility of assets submitted as repo collateral and, in particular, the criteria applicable to ABS as "eligible assets".