ECB considering tighter rules for emergency funding - source

FRANKFURT (Reuters) - The European Central Bank is considering tightening rules on the provision to banks of emergency liquidity assistance (ELA) from their national central banks, a central bank source said on Tuesday.

The ELA facility, effectively emergency funding given by euro zone national central banks to strapped commercial banks, played a crucial role during the financial crisis in countries like Greece, Ireland and Cyprus.

The loans are given at the discretion of the national central bank although they have to be approved by the ECB.

The source, speaking on condition of anonymity, said the ECB had held discussions at working level focussed on limiting the period of time for which banks could make use of ELA.

Christian Schulz, an economist at Berenberg bank, said any such move to restrict the use of ELA would play well in Germany, where ECB policy is widely seen as being too loose.

This could go some way to assuaging German concerns about the ECB embarking on a round of sovereign bond purchases -- a possibility it is considering.

"It sends out the signal the ECB is aware of some of the excesses during the crisis and is curbing them so that they won't be repeated," Schulz said of any move to tighten use of ELA.

"I think that will go down well in some part of the German media and at the Bundesbank," he added.

(Reporting by Paul Carrel; Editing by Ruth Pitchford)

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