ECB to tighten lending guarantees rules

5 July 2012

The European Central Bank (ECB) has altered its rules on what lenders can use as collateral in order to gain access to money from central banks.

Countries on the periphery of the eurozone are most likely to be affected by the changes, the Financial Times reports.

It is hoped the move will curb the practice of banks using government-guarantees on their own bonds in an effort to make securities eligible, as the ECB seeks to limit the risk it is exposed to.

In Germany, the Bundesbank is known to be particularly concerned about this issue, as it feels standards are not being enforced rigorously enough.

"The ECB said banks might still be able to use more bonds with government guarantees if they obtained the approval of its governing council and presented a plan to fund themselves," the paper stated.

It comes as details over a bailout package for Spain are being finalized.

By Asim Shah

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