ECB Revamps Money Market Rules, Will Raise Collateral Charge

By Christian Vits

Sept. 4 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said the ECB will charge financial institutions more for some of the collateral it accepts in return for funds in its money-market operations.

``We don't think it would hamper the way the system is functioning,'' Trichet said in Frankfurt today. ``It's a small fraction in the present total amount of collateral. I prefer to use the term refining.''

The ECB is concerned banks may be packaging risky assets into securities it accepts as collateral, allowing them to borrow money at a cheaper rate than they would get in the market. Europe's banks stepped up their borrowing from the ECB, whose lending rules are looser than the Bank of England's, after the credit crisis sapped demand from investors a year ago.

Trichet said he hopes that ``we will have a positive impact on helping the market being more active.''

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net