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ECB eyes tougher collateral terms but no decision yet

The European Central Bank wants to stop banks exploiting its generous rules to gain access to liquidity, two ECB governing council members said, but one of them added that no firm decisions had been taken.

Michael Bonello, who heads the Maltese central bank, told Reuters the ECB was set to make moderate changes to the rules on the assets it accepts as security for loans to commercial banks. “As market conditions and practices evolve, the system has to be reviewed to ensure that it is still being used for its intended purpose and does not accommodate undesirable practices,” he said in an interview conducted on Tuesday and published on Wednesday. “I don’t think there’s going to be some major fundamental change, there will be some modifications at the margin ... the review is still underway, there are no hard-and-fast decisions yet.”

Bundesbank President Axel Weber sent a similar message on the possible need to tighten current rules. “We are monitoring banks’ use of the collateral framework very closely,” Weber told Bloomberg news agency in an interview conducted on Tuesday and published on Wednesday. “We must ensure that our framework is not abused.”

Fellow policymaker Yves Mersch said at the weekend there was broad agreement among policymakers about the need for some tightening of the ECB’s rules. That sparked speculation among analysts about whether the ECB will go as far as banning the use of hard-to-value assets. The European Central Bank wants to stop banks exploiting its generous rules to gain access to liquidity, two ECB governing council members said, but one of them added that that no firm decisions had been taken.

Michael Bonello, who heads the Maltese central bank, told Reuters the ECB was set to make moderate changes to the rules on the assets it accepts as security for loans to commercial banks. “As market conditions and practices evolve, the system has to be reviewed to ensure that it is still being used for its intended purpose and does not accommodate undesirable practices,” he said in an interview conducted on Tuesday and published on Wednesday. “I don’t think there’s going to be some major fundamental change, there will be some modifications at the margin ... the review is still underway, there are no hard-and-fast decisions yet.”

Bundesbank President Axel Weber sent a similar message on the possible need to tighten current rules. “We are monitoring banks’ use of the collateral framework very closely,” Weber told Bloomberg news agency in an interview conducted on Tuesday and published on Wednesday. “We must ensure that our framework is not abused.” Fellow policymaker Yves Mersch said at the weekend there was broad agreement among policymakers about the need for some tightening of the ECB’s rules. That sparked speculation among analysts about whether the ECB will go as far as banning the use of hard-to-value assets. (Reuters)