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Mario Draghi: "The impact of (ABS) purchases will be bolstered by the scaling-up in parallel of the TLTROs"

FXStreet (London) - Mario Draghi, president of the European Central Bank, today opened the Frankfurt European Banking Congress.

On the issue of the ECB asset purchases:

- “We began our shift to actively deploying our balance sheet by focusing on the ABS market, as this was a market that was both impaired and that had a tight link with bank lending, which is the main transmission mechanism of monetary policy in the euro area. This reinforced our overall aim to ensure there are no barriers to credit supply as credit demand progressively picks up.”

- “Purchases of ABS will push down market spreads on senior tranches, reduce volumes available for investors in those markets and thereby encourage banks to relieve this scarcity by originating more ABS. As they can only do this by creating more loans in the first place, this ought to increase the supply of credit and reduce the price at which it is granted.”

- “The impact of these purchases will be bolstered by the scaling-up in parallel of the TLTROs. As banks receive cheap long-term funding on the condition that they expand loans to households and firms, the TLTRO will increase credit supply, which in turn should lead the price of credit to fall in a competitive environment.”

- “And both these measures will arrive in the context of the successful completion of the Comprehensive Assessment, which puts banks in a much stronger position to transmit our new monetary policy impulse.”

- “Indeed, there is already evidence that in expectation of the roll-out of these measures, banks are lowering lending rates and increasing loan volumes. Our latest Bank Lending Survey reported a net easing of credit standards on loans to non-financial corporations and, more generally, suggests we have passed a turning point in credit growth.”

Mario Draghi: "Our response has certainly been unconventional... but far from unorthodox"

Mario Draghi, president of the European Central Bank, today opened the Frankfurt European Banking Congress
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EUR/JPY falls to 5-DMA after Draghi speech

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