The ECB Exploring QE Options

The ECB is currently in the process of designing a fresh €500bn securities purchase program. There are multiple options on the table and the central bank is having staff run through a number of scenarios. Asset classes and asset quality scenarios run the gamut - from AAA assets only to everything from BBB- and up. The possibilities include government bonds only as well as a mix that also contains private credit. This is all in addition to the ABS and covered bond buying programs already in place.

But here comes the tough part - risk sharing. The ECB is looking at three possibilities:

Method-1. The full amount of securities purchased is shared based on each member-state ownership of the ECB (capital subscriptions). This is how risk has been shared so far on purchases by the central bank. It would be similar to the so-called Securities Market Program (SMP), which is how the ECB originally got stuck with defaulted Greek debt. Of course the Germans, with their 26% exposure to the ECB, are quite unhappy about this.

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