ECB's easy collateral policy may ricochet on Dutch taxpayer - paper

FRANKFURT (Reuters) - The European Central Bank's easy stance on bank collateral, part of its response to the euro zone's financial crisis, might leave the Dutch government footing the bill for a pile of unpaid mortgages, an academic paper has found. The paper, discussed at an ECB conference this week, said the ECB's 2012 decision to accept lower-rated bundles of residential loans as collateral led Dutch banks to extend more mortgages at lower interest rates, package them and sell them off. While this might have been part of what the ECB was trying to achieve, the paper also found that these cheaper loans were less likely to be repaid, particularly if they were guaranteed by the Dutch state. "Additional bank risk-taking induced by the collateral policy change could impose a negative externality on the state through loan guarantees," authors Sjoerd Van Bekkum, Marc Gabarro and Rustom Irani wrote. Dutch residential property prices have been rebounding for almost three years but are still well off the peak they hit in 2008, when the bubble burst. (Reporting by Francesco Canepa; Editing by Alison Williams)