BCE VERSO UN NUOVO T.L.T.R.O.?
(Bloomberg) — European Central Bank officials see no urgent need to offer new long-term loans to banks and aren’t certain to do so at their next policy meeting in March, according to people familiar with the matter.
Officials aren’t yet convinced about the necessity for more liquidity and are nervous that an offering could fuel perceptions that they’re helping out particular lenders, said the people, asking not to be identified because the issue is confidential. An ECB spokesman declined to comment.
Banks including Deutsche Bank AG, among the biggest borrowers under the program, are waiting to find out if the ECB will renew some 720 billion euros ($820 billion) of loans provided in the depths of the sovereign debt crisis to shore up lending.
ECB President Mario Draghi said in January that officials would need to see a “good case for monetary policy” before deciding to supply fresh funding. A darkened growth outlook and no prospects for new large-scale asset purchases could provide some grounds for that. Banks have also alerted the ECB that an expiration of the existing so-called TLTROs would probably make refinancing more expensive, with the costs likely to be passed on to companies.
“We have seen Draghi being very much aware of any tightening of financial conditions and market sell-off in the past years. Perhaps in his view that could be enough of a monetary-policy case,” said Piet Christiansen, a senior analyst at Danske Bank.
While there’s no urgency just yet — policy makers only briefly touched on the matter at their last Governing Council meeting — that may change by June. That’s when the maturity of outstanding loans starts to fall below one year, the threshold that allows banks to use them to comply with regulatory standards.
Deutsche Bank plans to replace TLTRO funds with covered bonds and anticipates to issue as much as 6 billion euros of the securities this year, a plan that may change if the ECB announces a new program. Spanish banks have also reassured investors of their ability to meet liquidity thresholds should policy makers balk at offering fresh loans.
Drawing out a decision would allow the ECB to better assess the state of the euro-area economy. Unexpectedly weak data have underlined that the region is still deeply reliant on monetary support, and some officials may argue that policy transmission, particularly in weaker countries like Italy, could be hampered.
Watch a Bloomberg TV interview with ECB markets chief Benoit Coeure here
Most economists expect the ECB to announce a watered-down version of the last TLTRO program — possibly similar to previous rounds of long-term funding that had shorter maturities and less attractive borrowing conditions.
The terms on any new loans will give clues about the future course of policy. A decision on whether to lend at a fixed or flexible rate will shape investor expectations for when and how quickly interest rates will rise. The maturity will signal for how long officials intend to work with a bloated balance sheet, and ultimately, how long they plan to reinvest proceeds from maturing debt bought under quantitative easing.
Before the ECB proceeds down its exit path, it’ll make an effort to maintain the present level of support, according to Marco Valli, chief euro-zone economist at UniCredit in Milan.
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