ECB to revisit collateral rules - Mersch

Speaking at the annual Fed conference in Jackson Hole, Wyoming, Yves Mersch, the governor of the Central Bank of Luxembourg and a member of the ECB's Governing Council, said: "The Governing Council has been discussing the whole issue'' and has agreed on a ``certain amount'' of refinement to the existing rules.

``It's not a broad-based revolution,'' said Mersch. ``We are satisfied with our framework. But since there are always on the margins evolutions, we have to adjust our framework regularly to market practices.''

``The precisions'' planned by the ECB ``concern some instruments,'' Mersch said.

Analysts suspect that the changes will be to risk limits and not a wholesale change of asset classes.

Officials in the Frankfurt-based central bank have become concerned that institutions may be using the ECB's relatively generous list of eligible assets to pledge paper to the central bank that would struggle to attract funding in markets suffering from the credit crunch.

Eyebrows have been raised, in particular, at the record €49 billion ($73 billion) the ECB lent Spanish banks, experiencing a post-property boom hangover, in July. Earlier this month, Nationwide, the UK's second biggest mortgage lender, announced plans to expand into Ireland in part to take advantage of funding opportunities.

Nout Wellink, who heads the Netherlands Bank, said in an interview last week with Het Financieele Dagblad, a newspaper, that banks should not become too dependent on the ECB for funding.

The ECB's broad list of eligible collateral is a legacy of the pre-euro days and amalgamates the lists of the national central banks which formed the single currency in 1999.