ECB takes lending step to help small business FRANKFURT (Reuters) - The European Central Bank moved on Thursday to get more money to the euro zone's struggling small businesses, letting banks use more of the assets once blamed for triggering the financial crisis as collateral for cheap loans. The ECB said it was expanding the list of asset-backed securities (ABS) that are eligible for use at its refinancing operations - the facilities banks use to tap the central bank for liquid funds - and reducing the discounts it applies to these assets. Blamed for triggering the financial chaos that toppled banks and sucked in countries, ABS - which are assets like loans bundled up together - have been undergoing a makeover in Europe where the ECB has backed an initiative requiring a loan-by-loan breakdown in ABS offered as security. Thursday's move offers hope for small- and medium-sized enterprises (SMEs) that banks will have more funds with which to offer them loans. But it unlikely to be a game changer for these businesses, many of which are cash-strapped and struggling to grow. Under the collateral changes, the ECB will lower the required credit rating on the "plain vanilla" brand of ABS for which it requires detailed information on the underlying assets - a step that reflects the increased transparency of this ABS. The change will free up about 20 billion euros ($26 billion) in ABS for use as collateral. However, this will be offset by a valuation markdown on so-called 'retained covered bonds', which banks issue and then hold themselves. The ECB regards these bonds as more risky. "I think in the short run this is a tidying up exercise," RBS economist Richard Barwell said of the collateral changes. To support European efforts to boost lending to smaller firms, the ECB said it was also looking at possibly accepting as collateral ABS that are linked to SME loans and guaranteed by European institutions or national development banks. Barwell added that this "medium term discussion ... is good news because we can get a little bit more positive on the prospects of a positive solution to the SME problem. But still the key to solving that problem must be fixing the banks. European efforts to create a banking union with a joint supervisor, a resolution authority for winding up zombie banks and a common insurance scheme are stalling as governments squabble over the design of the plan, and the costs attached. Small- and medium-sized businesses in the euro zone are more reliant on banks for funding than those in the United States. A dearth of funding makes it harder for SMEs to grow their businesses, holding back a recovery in the 17-country bloc. The collateral changes will allow banks to offer up more ABS as collateral for ECB funds, freeing them of the securitized assets for which there is still little investor demand and - in theory - giving them more scope to lend to firms. "Favoring asset-backed securities, which includes some backed by SME loans, could help a bit to ease the credit conditions for SMEs in the (euro zone) periphery," said Berenberg bank economist Christian Schulz, describing the move as a "small step."