THE EUROPEAN Central Bank (ECB) has given itself increased power to limit individual banks’ borrowing from its lending operations.

The bank changed its rules following an annual review, but made the move while talks are continuing about the need to tackle the dependency of some institutions on ECB funds.

Five Irish banks, State-controlled Anglo Irish and AIB, and Bank of Ireland, Irish Nationwide and the EBS, will be seeking cash from the ECB in return for around €35 billion worth of bonds from State toxic assets agency, Nama.

However, the Republic’s Central Bank said yesterday that the changes will not have any implication for Irish financial institutions or their funding.

Official figures show that southern European and Irish banks are the most dependent on ECB funding.

Greek, Irish, Portuguese and Spanish banks take more than half of the ECB’s loans, even though they account for less than one-fifth of the wealth in the euro zone.

Nama is buying over €70 billion worth of development loans from the five Irish banks, for around half their nominal value. The agency gives the banks involved bonds which they then exchange with the ECB for cash.

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

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

As well as fears about a reliance on central bank funds, the changes come after it was forced to write off €10.3 billion of collateral it was left holding after the collapse of Lehman Brothers and Icelandic banks.

The new rules also set clearer limits on hard-to-value asset-backed securities by removing swaps and synthetic securities from the list of eligible cashflow-generating assets.

To make it easier to claw back money if a bank collapses, they also limit ABS originators and where the underlying assets come from to the European Economic Area.

There are also new rules for structured covered bonds backed by property loans.

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.

The latest changes also allow the ECB to slap extra penalties on banks on a case-by-case basis and could potentially be used to try to force banks to break their dependency on ECB funding. – (Additional reporting, Reuters)