FAQ on the asset-backed securities purchase programme
Updated on 9 August 2023
The Eurosystem no longer conducts purchases of asset-backed securities under the asset-backed securities purchase programme (ABSPP) as of July 2023. This follows the Governing Council’s decision, taken on 15 June 2023, to discontinue reinvestments under the asset purchase programme (APP) from July 2023.
Objectives
Q1 What were the objectives of the ABSPP?
The ABSPP, together with the third covered bond purchase programme (CBPP3), the public sector purchase programme (PSPP) and the corporate sector purchase programme (CSPP), is part of the ECB’s asset purchase programme (APP). On 15 June 2023 the Governing Council decided that reinvestments under the APP would be discontinued as of July 2023.
The ABSPP was designed to further enhance the transmission of monetary policy, facilitate the provision of credit to the euro area economy, ease borrowing conditions for households and firms, and contribute to a sustained adjustment in inflation rates to levels in line with the ECB’s price stability objective. The ABSPP also helped banks to diversify funding sources and stimulated the issuance of new securities, which has ultimately facilitated the provision of credit to the real economy.
Eligibility criteria
Q2.1 Which asset-backed securities were eligible for purchase under the ABSPP?
The eligibility criteria are stated in Decisions ECB/2014/45, ECB/2015/31, ECB/2017/3 and ECB/2017/15 on the ABSPP.
The assessment of ABSPP eligibility followed a two-step approach.
First, an asset-backed security (ABS) needed to be eligible as collateral for the Eurosystem (see Q2.2 for more details regarding collateral eligibility). However, an ABS eligible as collateral was not automatically eligible for purchases under the ABSPP.
Second, purchase decisions under the ABSPP depended on the outcome of the Eurosystem’s due diligence analysis. To help market participants in this regard, the Eurosystem developed a set of high-level, non-binding and non-exhaustive guiding principles to illustrate the Eurosystem’s preferences (Guiding principles, with examples, of Eurosystem-preferred eligible ABSs) in terms of the ABSs that it considered for purchase in the context of the ABSPP. The guiding principles were not intended to serve as eligibility criteria like those set out in Decisions ECB/2014/45 and ECB/2015/31. They were also not intended to be construed as “pre-issuance advice”.
The Eurosystem retained full discretion to purchase, or refrain from purchasing, any ABS that met the ABSPP’s eligibility criteria.
Q2.2 Which requirements did an asset-backed security need to fulfil to be eligible as collateral for the Eurosystem, therefore making it potentially eligible for purchase under the ABSPP?
The criteria for collateral eligibility are specified in the Eurosystem legal framework for monetary policy instruments. The current status of several relevant legal documents is summarised in two unofficial consolidated texts, one for the permanent collateral framework in Guideline ECB/2014/60 (for ABSs in credit quality step (CQS) 1 and 2) and the other for the temporary collateral framework in Guideline ECB/2014/31 (for ABSs in CQS 3).
Q2.3 What were the maximum and minimum maturities of asset-backed securities eligible for purchase under the ABSPP?
No binding maximum or minimum maturity was defined for the programme.
Q2.4 What was the maximum or minimum issuance size of asset-backed securities eligible for purchase under the ABSPP?
No minimum or maximum issuance size was defined for the programme.
Q2.5 Was there a maximum share for purchases of an asset-backed security under the ABSPP?
In general, ABSPP purchases were limited to a maximum of 70% of the outstanding nominal amount of an ABS tranche (with the same or fungible international securities identifying number [ISIN]).
Q2.6 Was it possible for mezzanine tranches to be considered for ABSPP purchases?
It was possible for mezzanine tranches to be considered for ABSPP purchases, provided that they were subject to a guarantee complying with the criteria for guarantees in the Eurosystem collateral framework set out in Articles 114, 115, 117 and 118 of Part Four, Title IV of Guideline (EU) 2015/510 (ECB/2014/60), unofficial consolidated version. Additionally, they had to be issued by a guarantor with a credit assessment in accordance with Article 83(c) of Guideline ECB/2014/60 (as outlined in Article 2(9) of Decision ECB/2014/45). This means that the guarantee had to be unconditional and irrevocable, payable on first demand, and cover principal, interest and any amounts due under the ABSs. In addition, the Eurosystem would conduct appropriate credit risk and due diligence procedures before the purchase of guaranteed mezzanine tranches of ABSs, in line with the procedures that were in place for all ABSs considered for purchase.
Q2.7 Could equity tranches also be considered for ABSPP purchases?
No. The Eurosystem could only purchase senior and guaranteed mezzanine tranches of those ABSs that fulfilled the eligibility criteria described above.
Q.2.8 Did the ABSPP purchase in the primary and secondary market?
The ABSPP conducted purchases in the primary (and also in the secondary) market until the start of the partial reinvestment phase in March 2023. Between March 2023 and June 2023, the ABSPP only conducted purchases in the secondary ABS market.
Q2.9 Were retained asset-backed securities part of the purchasable universe?
Retained ABSs were part of the eligible universe until the start of the partial reinvestment phase in March 2023. From then, until the discontinuation of the reinvestments under the APP as of July 2023, the ABSPP only conducted purchases in the secondary ABS market.
Q2.10 Under the ABSPP, the Eurosystem could buy up to 70% of an asset-backed security per ISIN. For the remaining 30%, were these eligible as collateral for Eurosystem monetary policy operations, assuming they met the asset-backed security eligibility criteria?
Provided that all Eurosystem collateral eligibility criteria were fulfilled, the remaining outstanding amount of the ABS could be used as collateral in Eurosystem credit operations.
Q2.11 Was it possible for asset-backed securities based on non-performing loans to be bought under the ABSPP?
Collateral eligibility was one requirement for an ABS to be eligible for the ABSPP. Within the general framework, the inclusion of non-performing loans in the pool of underlying assets does not preclude an ABS from eligibility as collateral as long as this ABS holds a minimum second-best rating of A-. As part of the temporary measures to enhance collateral availability, ABSs with a minimum second-best rating of BBB can be accepted as collateral. In this case, however, the loans must be performing, at the time of inclusion in the ABS. As for any other purchase of ABSs under the ABSPP, additional due diligence was conducted by Eurosystem experts on a single asset basis. The Guiding principles (with examples) of Eurosystem-preferred eligible ABSs stated that the loans should be performing at the time of inclusion in the ABS.
Q2.12 Was it possible for asset-backed securities containing leasing receivables with residual value leases in the underlying pool of assets to be bought under the ABSPP?
Article 2(49) of Guideline ECB/2014/60 specifies that residual values are not leasing receivables. Therefore, cash-flow generating assets backing an ABS could not comprise leasing receivables with residual value leases.
Q2.13 To maintain collateral eligibility, rating agencies must publish surveillance reports outlining key performance figures on a regular basis. What are the effects if rating agencies fail to do so?
Under Article 88(2) of Guideline ECB/2014/60, the publication of surveillance reports by at least two rating agencies that are eligible rating agencies within the Eurosystem Credit Assessment Framework (ECAF) is a requirement for an ABS to be eligible for use as collateral in the Eurosystem. Such surveillance reports must be published at the latest four weeks after each coupon payment. If the surveillance reports are not published by at least two ECAF-eligible rating agencies, the ABS loses its collateral eligibility, which is only restored once surveillance reports have again been published by at least two ECAF-eligible rating agencies.
Implementation of the ABSPP
Q3.1 How was the ABSPP implemented?
At the start of the ABSPP, the Eurosystem performed ABS purchases with the support of external asset managers. Later on, the purchases were conducted through the national central banks acting as internal asset managers. Each internal asset manager was responsible for covering a specific geographical area. ABSs were part of a geographical area based on the country of the underlying collateral. At the end of the reinvestment period in June 2023, the following allocations applied:
- Nationale Bank van België/Banque Nationale de Belgique: Belgium
- Deutsche Bundesbank: Germany
- Banco de España: Spain
- Banque de France: Finland, France, Ireland, Luxembourg and Portugal
- Banca d’Italia: Italy
- De Nederlandsche Bank: Netherlands
Q3.2 Why did the Eurosystem perform due diligence?
European financial institutions such as credit institutions, insurance undertakings and fund managers are required by the relevant legislation (from 1 January 2019, the Securitisation Regulation, and, previously, the CRR, Solvency II Directive and Alternative Investment Fund Managers Directive) to conduct due diligence prior to investing in an ABS. The Eurosystem followed a similar procedure in relation to its purchases under the ABSPP. It did so to ensure that its purchase decisions were taken on the basis of thorough analysis and following best market practices, just like any other ABS investor.
Q3.3 Was there a restriction on counterparties from which the Eurosystem purchased asset-backed securities under the ABSPP?
In the context of the ABSPP, the following counterparties were eligible: (a) counterparties participating in Eurosystem monetary policy operations; (b) counterparties that were used by Eurosystem central banks for the investment of their euro-denominated investment portfolios; and (c) entities deemed to be eligible counterparties for outright transactions under the ABSPP by the Governing Council on the basis of a Eurosystem counterparty risk assessment carried out by the ECB (as outlined in Article 4 of Decision ECB/2014/45).
Q3.4 Was it possible for asset managers and non-bank financial institutions to offer assets eligible for purchases under the APP?
Asset managers and non-bank financial institutions were not eligible counterparties. However, the Eurosystem offered its eligible counterparties the possibility to share offers of eligible securities on behalf of non-eligible counterparties, such as asset managers and non-bank financial institutions, under the APP. Final responsibility for the offered assets remained entirely with the eligible counterparties. In periods of heightened investor uncertainty, such as during the coronavirus pandemic, this option contributed to alleviating market tensions and supporting proper market functioning.
Q3.5 Was the Eurosystem acting as a “regular” investor when conducting purchases under the ABSPP?
The Eurosystem purchased ABSs at prevailing market prices.
Q3.6 Was the Eurosystem able to purchase asset-backed securities below the deposit facility rate?
As of 12 September 2019 the Eurosystem was able to purchase ABSs with a yield below the interest rate on the ECB’s deposit facility to the extent necessary – see press release of 12 September 2019.
Other questions
Q4.1 Where on the ECB’s website can I find a list of the Eurosystem’s current holdings of asset-backed securities?
Information on aggregate ABSPP holdings can be found on a weekly basis in the section Asset purchase programmes. This section also shows a breakdown of the ABSPP holdings by rating, country of risk and collateral type on a semi-annual basis.
Q4.2 Does the ECB publish a list of the asset-backed securities purchased under the ABSPP or a list of those that were not eligible for ABSPP purchase?
The ECB does not publish a list of ABSs it has purchased. Nor does it publish a list of ABSs that were not eligible for ABSPP purchases. The eligibility criteria are stated in Decisions ECB/2014/45 and ECB/2015/31 on the ABSPP. The ECB’s guiding principles (see Q2.1) can also provide further guidance on which type of structures were being considered for purchases.
Q4.3 Was the Eurosystem able to participate in private placements of asset-backed securities?
The Eurosystem was not able to participate in private placements of ABSs.