Bank reshuffles accepted collateral for money market ops

A man passes the Bank of England in the City of London February 10, 2011.

LONDON (Reuters) - The Bank of England said on Friday it would rejig the list of countries whose securities it accepts as collateral from commercial banks that want to participate in its money market operations. The Bank currently operates a two-tier ranking of the collateral it accepts, with securities in the narrow band drawing a lower rate of interest than those in the wider band.

The Bank said all sovereign, central bank and supranational debt currently eligible as collateral would remain so.

But from July 1 the set of narrow collateral will be expanded to include U.S. and Canadian government bonds, which were previously only eligible as wider collateral. Those issuers join Britain, Germany, France and the Netherlands, whose papers will continue to be accepted as narrow collateral.

Debt issued by a group of countries whose markets are deemed less liquid will, from July 1, only be accepted as wider collateral -- requiring banks that present such securities to pay a premium.

The group comprises Austria, Belgium, Cyprus, Denmark, Finland, Ireland, Italy, Luxembourg, Norway, Portugal, Slovenia, Spain and Sweden.

"In making these changes, narrow collateral will in future include only those securities which in the bank's view are likely to remain liquid in all but the most extreme circumstances, and are issued by sovereigns with sufficiently deep debt markets to facilitate broad access to the Bank's operations," the Bank said in a statement.

The Bank said it was adding Australian and New Zealand government bonds to the list of securities it accepts as wider collateral.

"It's all down to the liquidity and depth of the market the securities come from," a BoE spokesman told Reuters.

(Editing by John Stonestreet)