The bank will pay 300 billion in advance, against the expected 500

To fight file inflation, the European Central Bank, after aggressively elevating its key charge, the following are the first milestones: In late October, it started the largest motion to scale back liquidity in the banking system since its creation: the measurement of its big steadiness sheet exceeds 7,000 billion euros. (together with greater than 2,000 billion in TLTRO) inherited first from the 2008 monetary disaster after which from the Covid pandemic.

Eurozone banks will pay againnt In the subsequent few days The European Central Bank has borrowed 296 billion euros of liquidity beneath the “long-term refinancing operation” (TLTRO), the ECB introduced on Friday. Less than expected quantity.

Very favorable phrases

For the file, TLTROs (Targeted Long Term Refinancing Programme), the ECB’s former flagship measure to revive very weak worth actions in the euro zone, has been provided to banks since September 2014, at a charge of 1 per quarter, on the situation that they lend extra to households and companies. TLTRO loans are very low cost: their charge, initially set at 0.15%, was lowered to 0.05% in January 2015 to extend their attractiveness. It goes with out saying that banks can get nearly free loans via this association.

In current years, beneath the TLTRO, banks have borrowed a complete of two,100 billion euros from the ECB, thus profiting from very favorable situations.

Early reimbursement is voluntary, however the central bank modified the phrases of those loans final month, which was seen as an incentive to make the most of the alternative.

Analysts had been relying on common for this Friday to request fast repayments of round 500 billion euros.

Market response and impression on “peripheral” nations

ECB leaders ought to fastidiously research the banks’ demand and market reactions in view of the shrinking of the establishment’s steadiness sheet and the future liquidation of a bond portfolio of round 3,300 billion euros constructed up in the current previous. yr beneath its APP asset buy program.

The matter will be on the agenda of the December 15 assembly of the Board of Governors.

The impression of bank repayments ought to be significantly important in the euro space’s so-called “peripheral” nations, which will return to the market a better proportion of their authorities bonds, presently deposited with the ECB beneath the assure of the TLTRO.

Next prepayment window, December 21

The ECB additionally has to observe the response of cash markets, on the foundation of which banks lend to one another in the brief time period.

These markets have been penalized by the ECB’s insurance policies in current years as banks have struggled to search out good high quality bonds as collateral for such loans, whereas the very favorable phrases of the TLTRO have inspired them to maneuver in direction of the finish.

Banks got till November 16 to tell the ECB of their intentions, however the reimbursement will solely take impact on November 23.

With the subsequent “window” for prepayments set for Dec. 21, some banks might desire to attend till subsequent month, some analysts say.

Why has the ECB’s steadiness sheet ballooned a lot?

In the years of very low inflation following the 2008 disaster, adopted by shocks brought on by Covid-19, the European Central Bank launched distinctive measures to stimulate the economic system.

By huge purchases of sovereign and personal debt in the secondary market, the ECB helped cut back borrowing prices and assist costs.

First there was the “Quantitative Easing” (QE) program from 2015 after which the emergency “PEPP” program throughout the first section of the pandemic.

During this era, banks got three waves of massive and low cost loans (“TLTROs”), in return for which they hoped to lend sufficient cash to companies and households.

The consequence: the Frankfurt Institute and the 19 central banks of the euro space have an enormous steadiness sheet of about 8,800 billion euros, of which 7,000 billion are linked to this liberal financial coverage. The inventory of acquired loans is an alarming 5,000 billion euros against about 2,000 billion for “TLTRO” loans in the portfolio.

(With AFP and Reuters)