Fed, ECB plan to take foreign collateral - paper

BERLIN, Aug 27 (Reuters) - The U.S. Federal Reserve and the European Central Bank are planning to change collateral rules to allow commercial banks to use foreign currency collateral, the Financial Times Deutschland reported late on Wednesday.

The FTD cited "information from financial circles" as saying that the Fed and ECB were considering setting up a formal arrangement that would allow banks to use euro-denominated collateral to borrow dollars from the Fed and vice versa.

The FTD said in its Thursday edition that the Fed wished this to be a permanent arrangement, while the ECB preferred such a facility only to be available during emergencies.

The Bank of England and Germany's Bundesbank also wanted to participate, while the position of the Swiss National Bank was unclear, the paper added.

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

Currently banks can only receive central banks funds in the same currency as they have collateral for, apart from two recent Fed-backed arrangements with the ECB and Swiss National Bank which enable the latter two banks to lend dollars against euro and franc collateral.

The ECB's current rules also allow it to offer currency swaps to commercial banks. (Reporting by David Milliken)