Euro zone central banks too loose on collateral - Spiegel

BERLIN (Reuters) - Euro zone central banks have been lending money to commercial banks against highly questionable collateral, leaving the central banks potentially exposed to hundreds of billions of euros of bad loans, Germany's Der Spiegel magazine reported.

Without citing its sources, Spiegel said commercial banks from Ireland, Greece, Portugal and Spain had used risky asset-backed securities (ABS) as collateral in money market operations to obtain funds from the European Central Bank.

Some national central banks in the euro zone, accepting the collateral on behalf of the ECB, have not applied collateral standards stringently enough and have not imposed the required level of discounts to compensate for the risk of those securities, Spiegel said.

Currently, the outstanding amount lent by the ECB in its open market operations totals 417 billion euros (362 billion pounds). According to ECB figures, 480 billion euros of ABS, which are securities backed by pools of underlying assets such as real estate, are deposited at the central bank, though not all of it is being used as collateral.

Spiegel reported that almost a third of the 78 various securities submitted as collateral to the Irish central bank by Depfa Bank, the Irish unit of failed German lender Hypo Real Estate, were valued too richly. If guidelines had been applied correctly, Depfa would have been able to borrow about 20 percent less using those assets, the magazine said.

Spiegel said it had contacted the Irish central bank about the discrepancies, and that the Irish central bank had responded by changing its handling of some collateral.

For example, at the end of February the Irish central bank more than doubled the discounts it applied to 21 securities submitted by Depfa, the magazine reported.

The ECB declined to comment on the Spiegel report, while there was no immediate comment from the Irish central bank.

Since each euro zone central bank holds a share of the ECB's capital, all the central banks are collectively liable for defaults in any part of the system.

For example Germany's central bank, the Bundesbank, holds 27 percent of the ECB's capital. This means the Bundesbank may not have set aside enough reserves for possible losses between 2010 and 2012, since it has only made provisions for 4.9 billion euros, Spiegel said. Bundesbank officials could not immediately be reached for comment.

(Reporting by Christiaan Hetzner; Editing by Ron Askew and Andrew Torchia)