FRANKFURT, March 6 (Reuters) - The European Central Bank raised concerns about European Union plans for bank-to-bank lending limits on Friday, saying it could make it harder for banks to cope with a repeat of the credit crunch.
The EU plans included a recommendation to impose a limit on inter-bank exposures of 25 percent of the credit institution's own funds or the amount of 150 million euros, regardless of their maturity.
But the ECB said the idea may not be a good one, as banks could find it harder to cope with a repeat of the credit crisis.
"Internal quantitative analysis by the ECB suggests that a non-negligible share of banks would have been constrained in their overnight lending activities in a substantial number of transactions if the limit had been in place before the start of the financial market turmoil in August 2007," it said in legal opinion published on its Web site.
"This constitutes a substantial and undesirable change when compared to the current EU legal framework." The ECB went further in its criticism, saying it could hamper its own monetary policy role.
"From a monetary policy implementation perspective, the ECB is of the view that the above proposed limit would constrain the smooth flow of liquidity within the inter-bank market and could be detrimental to the smooth functioning of the euro money market."
EU states have already reached a preliminary agreement on the plans. The European Parliament, which has a joint say on the measures, holds a committee vote on Monday before a final deal with EU states in April.
(for full legal opinion please click on http://www.ecb.int/ecb/legal/pdf/en_con_2009_17_f_sign.pdf)
(Reporting by Marc Jones and Huw Jones)