Oct. 16 (Bloomberg) -- Europe's central banks are intensifying efforts to jolt credit markets back to life.

The Bank of England said today it will curb disclosure of emergency borrowing and reduce the penalty charged on overnight loans in a bid to repair its money-market operations and kill the stigma on assistance. The European Central Bank yesterday said it will accept lower-rated securities as collateral when lending to banks and offer them as many euros as they want over the next six months. The Swiss central bank said it will conduct currency swaps with the ECB, which today said it will also support efforts to boost liquidity in Hungary.

``Central banks are throwing everything they can at the credit markets to get them working again,'' said Win Thin, an economist at Brown Brothers Harriman & Co. in New York.

Policy makers are becoming more creative as they try to end a 14-month credit freeze which has left their economies on the edge of recession. By extending ties with Switzerland and Hungary, the ECB is also increasingly serving as a central banking hub for Europe by seeking to improve the flow of money through its neighboring economies.

Throwing open the door to what it will accept when lending, the ECB will now exchange cash for debt securities denominated in dollars, pounds and yen as well as euros as long as they are issued in the 15-nation bloc. The changes take effect imminently and stay in force until the end of next year.

`More Substantial'

``Essentially, they are moving to provide financing in a much more substantial way to the banking system,'' said Julian Callow, chief European economist at Barclays Capital in London. He calculates the ECB's new willingness to accept certificates of deposit could generate up to 450 billion euros ($603 billion) alone.

The rating on the bonds accepted in market operations was cut to BBB- from A-, with the exception of asset-backed securities. The ECB also said it's expanding its program of offering banks unlimited cash to all ``longer-term'' operations. Previously this only applied to its weekly operations.

The Bank of England is also stepping up its efforts amid criticism it hasn't done enough to tackle the crisis. As well as trying to make emergency borrowing easier, it will unveil a discount facility window on Oct. 20 that will allow banks to swap collateral including illiquid corporate securities for U.K. government debt.

Systematic

``The arrangements set out our liquidity provision in a systematic way to help banks plan their access to central bank liquidity, and so add certainty,'' King told reporters in London today. Banks have shunned the bank's emergency overnight lending service ever since a witch hunt last year forced Barclays Plc to deny having liquidity problems after using it.

The shifts follows a redoubling of efforts by policy makers to thaw money markets. In the past week, the ECB said it will offer banks as many euros and dollars as they want and joined the Bank of England and other counterparts in a united round of interest-rate cuts. Governments have also established programs to recapitalize banks and guarantee bank lending.

The Frankfurt-based ECB yesterday lent banks $170.9 billion for seven days at a fixed rate of 2.277 percent and the Bank of England allotted $76.3 billion. The central banks last week cut their main rates by half-points to 3.75 percent and 4.50 percent respectively.

`Significant Share'

``The ECB is trying to ensure that at least a significant share of the 50 basis-point rate cut which it consented on Oct. 8 will be effectively passed to the rest of the economy,'' said Gilles Moec, an economist at Bank of America Corp. in London and a former official at the French central bank.

Policy makers have so far had some success in reducing money-market rates, with the cost of borrowing euros over three months falling for a fifth day yesterday to 5.175 percent.

Even so, banks remain skeptical of lending to each other, depositing a record 210.8 billion euros with the ECB yesterday rather than storing it elsewhere.

``Despite some positive reaction, the interbank market has still not come to life,'' said Carsten Brzeski, an economist at ING Group in Brussels. ``The only question remains whether the ECB has any ammunition left.''

President Jean-Claude Trichet said Oct. 12 that the ECB lacks the legal powers to immediately follow the Federal Reserve in opening a facility to buy commercial paper.

Running Short

The ECB may have acted in part because some banks were running short of acceptable collateral, according to Moec. Dropping the cap on cash over a longer time should also help the economy by reducing 3-month and 6-month lending rates which serve as benchmarks for some loans to companies and consumers, he said.

``It's a very significant step,'' said Moec. ``They are acting to influence both the price of money and the quantity of money out there.''

In an effort to make it easier for banks in Europe to access dollar liquidity, the ECB also said it will start offering dollars through foreign-exchange swaps. Separately, the ECB and the Swiss National Bank announced they will conduct seven-day currency swaps to lower money-market rates for Swiss francs. The ECB today said it will back the Hungarian central bank's money-market operations with as much as 5 billion euros.

The ECB's increased generosity marks a reversal from Sept. 4 when it announced plans to tighten its lending rules. The bankruptcy of Lehman Brothers Holdings Inc. on Sept. 14 precipitated the latest chapter of the credit crisis, causing banks to stop lending to each other out of concern they may not get their money back.

``The expansion of the eligibility criteria announced today will be combined with vigilant monitoring of the use of the framework,'' the ECB said.

To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.netChristian Vits in Frankfurt at cvits@bloomberg.net

Last Updated: October 16, 2008 07:35 EDT