ECB underscores its power to limit banks' borrowing

09:21, October 11, 2010      

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The European Central Bank has made changes to its legal framework, underscoring its power to limit individual banks' borrowing at ECB lending operations, amid ongoing discussions about how to tackle the dependency of some institutions on ECB funding.

The changes, published Saturday, clarify the ECB's ability to bar or restrict banks from borrowing from the ECB and impose ad-hoc limits on what assets can be swapped for loans.

"On the grounds of prudence, the Eurosystem may also reject assets, limit the use of assets or apply supplementary haircuts to assets submitted as collateral in Eurosystem credit operations by specific counterparties," the new legal text says.

The changes went into force Sunday. Although there was already a provision to restrict banks' borrowings, the new rules spell out the ECB's powers more clearly.

The ECB already has toughened lending rules once this year. From January, banks will face higher penalties if they use weaker-rated corporate debt to borrow ECB cash.

Official central bank data shows that Southern European and Irish banks are the most dependent on ECB funding, with Greek, Irish, Portuguese and Spanish banks taking more than half of ECB loans, even though they account for less than one-fifth of the eurozone's gross domestic product.

Source: Global Times


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