The European Central Bank paved the way last night for taking a dramatically increased role in malfunctioning financial markets after announcing radical steps to boost funding for commercial banks.

The ECB will allow banks borrowing from it to put up a broader range of collateral, including assets with a lower credit rating than previously and denominated in currencies other than the euro. Combined with previous pledges by the ECB to match demands by banks for liquidity, the measures are likely to result in a substantial increase in the total funds that it supplies - and the risks borne by the Frankfurt-based institution.