TLTRO – no more bets!

European banks continue to be subsidized via cheap ECB funding.


The ECB launched a second series of Targeted Long-Term Refinancing Operations (TLTRO-II) in March 2016 with the specific objective of boosting bank credit. Today’s M3 report, including bank credit flows for January 2018, will be used to calculate the interest rate applied on TLTRO-II loans, which amount to EUR740bn in aggregate.

With the notable exception of Italy, Portugal and the Netherlands, we estimate that most commercial banks in the euro area will qualify for the lowest TLTRO rate of -0.40%, helping to offset part of the direct cost of the ECB’s negative deposit facility rate.

Since the introduction of large-scale asset purchases in early 2015, the ECB’s focus has shifted from credit easing to quantitative easing, and now to the appropriate exit strategy from all unconventional measures. However, it would be a mistake to count TLTROs out, in our view, since they could still be part of the ECB’s easing toolkit in the next downturn.

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