Top central banks eye foreign currency collateral

By Krista Hughes

FRANKFURT (Reuters) - Major central banks are working on new rules to bolster global liquidity flows in times of crisis by accepting assets denominated in foreign currencies, a Group of Ten central banking source said on Thursday.

They aim to address calls made more than two years ago for them to cooperate more -- a recommendation that was issued again in a Financial Stability Forum (FSF) forum report in April.

Under the changes, commercial banks could be allowed to use euro-denominated collateral to borrow dollars from the U.S. Federal Reserve and submit dollar-denominated assets as guarantees for European Central Bank liquidity operations.

"The assets would have to be of high quality," the G10 source said. "No firm decision has yet been taken."

Citing "information from financial circles", Thursday's Financial Times Deutschland newspaper reported the Bank of England and Germany's Bundesbank also wanted to participate, while the position of the Swiss National Bank was unclear.

Euro zone central banks would probably decide whether to go ahead with the plan after a September 23 meeting, with a final decision among all central banks in October, the FTD said.

The Fed, the ECB, the Bank of England, and the SNB had no comment on the report.

The bank of England and the SNB already accept assets in foreign currencies. The ECB and SNB have Fed-backed arrangements which allow them to lend dollars against euro and franc collateral.