Hence, a broad class of ABSs may qualify as collateral, both residential- and commercial-backed securities, all sorts of consumer credit backed ABSs, cash-flow collateralised loan obligations (CLOs) and CDOs. Overall the volume of eligible ABSs constitutes approximately 60% of the entire outstanding European securitisation market. As regards the developments in the use of collateral since the start of the turmoil (see Chart 4), they show clearly that counterparties have made active use of the leeway the collateral framework provides. Quite understandably, they have economised on the use of central government bonds, which has been often almost the only collateral counterparties could still use in interbank repo markets. Instead they have brought forward less liquid collateral to the Eurosystem, including ABSs, for which primary and secondary markets have basically dried up. The annual average share of asset-backed securities pledged as collateral increased to 16 percent in 2007, up from 12 percent in 2006 and 6 percent in 2004. However, I would like to issue a note of caution here. The fact that counterparties post ABSs as collateral with the Eurosystem does by no means imply that those assets are refinanced on a one-to-one basis by us. The majority of national central banks operate with a so called “pooling system”, in which much more collateral can be deposited with the central bank than counterparties actually need to cover their outstanding credit with the Eurosystem.
To do that, trust should be rebuilt between the countries of Europe. Trust is vital. From a French perspective, how can that trust be re-created? By carrying out reforms, and France is doing that. And by reducing deficits even more? By continuing to reduce the deficit so that debt falls and France is ready when growth slows down. And by making further cuts in public spending? It is not for the ECB to tell the French government what needs to be done in detail, but what we wish is for France to have the capacity to respond economically when growth slows down and for it not to depend completely on monetary policy. 2/2  BIS central bankers' speeches