The European Central Bank said it will relax some rules on the collateral that banks can offer in exchange for central bank loans.

The ECB has cut the rating thresholds and amended eligibility requirements for some asset-backed securities, the Frankfurt-based central bank said in an e-mailed statement today. Residential mortgage-backed securities and loans to small and medium-sized enterprises rated at least BBB- at Standard & Poor's will now be accepted with a valuation haircut of 26 percent, it said. The previous minimum rating on such securities was A-.

"They've had to acknowledge reality, and they're obviously having to accept lower-quality paper," said David Owen, chief European economist at Jefferies Securities International in London. "It's all part and parcel of the on-going stresses in the system."

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