Jean-Claude Trichet yesterday downplayed the toughening up of the European Central Bank's liquidity scheme as mere fine-tuning. But he is right to demand more collateral from banks seeking short-term cash as they grapple with a credit crunch which is easing only very modestly.

Unlike the Bank of England, which has demanded triple-A securities from those wanting to take advantage of its Special Liquidity Scheme, the ECB has been prepared to accept much lower quality paper. It is sensible to lend a lower proportion of the supposed value of that collateral.

That is doubly wise when the valuations are determined not by everyday trading in deep, liquid markets, but by computer models. It is trebly wise when some banks are reportedly dumping their most toxic mortgages into specially created asset-backed securities and presenting them in Frankfurt for cash.

Stresses in the money markets have eased from the near paralysis of five months ago, but not by much. Banks are still hoarding cash and are still reluctant to lend to one another. That in turn crimps everyday lending, whether to would-be house buyers or blue-chip corporates, and makes it more expensive.

The ECB is right to be tough, regardless of the plaintive pleading for yet more help from the finance industry on both sides of the Atlantic. Bill Gross of US bond house Pimco argues that the time has now come to give the US Treasury powers simply to buy up stocks and debt to prevent a catastrophic asset sell-off snowball.

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