ECB mulls tougher bank loan rules

European Central Bank officials were considering new rules that would require banks to give more information about loans used as collateral for borrowing from the institution, a person with knowledge of the situation said.

The ECB wanted to stop lenders taking advantage of the lower burden of information it demanded on loans compared with asset-backed securities, the person said. Officials were still working on the proposals for improving their ability to value the so-called non-marketable assets, the person said.

Loans, credit claims and deposits used as collateral for borrowing from the ECB soared 60 per cent to an average of €668.4 billion (HK$6.89 trillion) in the third quarter of last year, the central bank said, accounting for 27 per cent of the €2.52 trillion of collateral posted. That's more than any other guarantee type and compares with €371.7 billion of asset-backed debt.

"It makes sense to demand that loans face the same, or even higher, disclosure levels as asset-backed securities," DZ Bank debt trader Dalibor Jarnevic said. "By accepting loans, the ECB helped banks with serious liquidity needs to fund themselves."

The Eurosystem was continuously working on improving its collateral framework, with one aim being higher transparency standards for various assets, an ECB official said.

The ECB broadened the types of credit that national banks in seven countries of the euro region can accept as collateral last February in an attempt to reduce stress during the height of the debt crisis.