Swiss central bank easing lenders' access to cash in review of rules, sources say

* SNB easing banks' access to cash in crises, sources say

* Central bank to widen asset types accepted as collateral

* SNB to allow the use of Lombard loans

* Central bank says it regularly reviews eligible collateral

LONDON/ZURICH, March 18 (Reuters) - The Swiss National Bank is easing banks' access to cash in emergencies, working with lenders to widen the pool of assets they can pledge to secure funds when under strain, two sources familiar with the matter told Reuters.

The SNB has signalled it will grant lenders access to central bank liquidity by accepting a broader pool of commercial loans, as well as so-called Lombard loans, the people said.

Switzerland's largest lender UBS, which bailed out rival Credit Suisse last year, is reviewing its portfolios to ensure its loans are eligible, one of the two people told Reuters. When borrowing from central banks, lenders need to provide certain assets in exchange, also known as collateral, which must be easy to price and sell in financial markets. That protects taxpayers in case the lender cannot repay the central bank. Broadening the range of assets the SNB will accept could enable UBS to significantly expand how much it could tap in an emergency. As of the end of 2022, UBS had $154 billion of Lombard loans in its books.

Credit Suisse's collateral was not sufficient to cover massive outflows, the SNB said in a report last year, accelerating the bank's downfall.

A spokesperson for the SNB told Reuters that "the universe of eligible collateral is reviewed by the SNB on an ongoing basis and developed in dialogue with the banks."

A UBS spokesperson declined to comment.

After Credit Suisse's implosion, which saw the SNB lend to Credit Suisse without security, the Swiss Federal Department of Finance set up a group of economists and bankers to examine potential improvements.

The group has called on the SNB to add Lombard and collateral loans to the pool.

The SNB's "conservative" approach had so far seen it accept mainly residential and commercial mortgages, in contrast to other leading central banks, the group said in its report.

The SNB is governed by the National Bank Act which states that it can provide credit if "sufficient" collateral is provided, without further elaborating.

LOANS DEBATE

A senior banker told Reuters the measures should ultimately apply to all systemically important banks in the country.

The discussions over the broadening of assets come amid concerns - including from a global watchdog - about the enlarged size of UBS relative to the Swiss economy, and lobbying from the banking sector to expand the pool.

The Swiss Bankers Association said in a paper this month that the SNB should "explicitly" expand the scope of eligible collateral for emergency liquidity.

"The current focus on mortgages is not sufficient to cover every liquidity need in a crisis," it said.

Lombard loans, named after a region in northern Italy where credit was used dating back to the Middle Ages, are a form of lending secured against assets including equities and bonds.

Wealth managers such as UBS often lend to rich clients using Lombard loans.

AVOIDING STIGMA

Banks and the central bank are also discussing whether to make tapping emergency liquidity a regular tool, by potentially delaying disclosure around its use, the people said.

The Financial Stability Board (FSB), a group of central bankers, recently said that “delaying” information could help in that regard.

Last year, the SNB turned to the U.S. Federal Reserve, using a little-known line of funding to quietly withdraw about $60 billion, the maximum allowed, Reuters has reported in December. (Reporting by Stefania Spezzati, Oliver Hirt, Noele Illien and John Revill in Zurich; additional reporting by John O'Donnell in Frankfurt; editing by Tommy Reggiori Wilkes, Elisa Martinuzzi and Sharon Singleton)