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Banks Reject Cheap ECB Funding

James Boston
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Banks Reject Cheap ECB Funding

The European Central Bank (ECB) has today launched it’s Targeted Long Term Refinance Operation (TLTRO). The scheme announced at it’s June policy meeting is designed to boost bank lending by providing cheap funding, banks are entitled to apply for funds equivalent to 7% of their qualifying loan books, in this case consumer and business loans excluding mortgages and financial intermediaries, funds are available to successful applicants at just 0.15 % for a four year period.

In all it was estimated that today’s tranche could be provide up to €400bn in low cost funding for Eurozone banks, however analysts estimated that the take up would more likely be in the region of €100bn to €300bn. According to this mornings announcement however the actual amount drawn was only €82.60bn. The limited take up of this tranche will come as a disappointment to the ECB who had seen this as a legitimate way to increase liquidity in the real economy.

A significant take up in the early stages was considered crucial to the success of this TLTRO scheme. Phase two of the scheme, which comes into effect next year, was anticipated to dwarf the initial €400bn maximum size of this initial phase. The problem now with achieving scale in phase two is that banks entitlements are to be calculated based on the increase in lending to qualified sectors brought about by the use of the funds drawn in phase one. Since phase one is low in take up this severely limits the potential for a successful phase two allotment of funds.

There are no details yet as to how the funds have been allotted across member states or indeed across the 382 entities eligible to apply. Institutions that have not drawn their full entitlement will get a second chance to do so in December.

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