FRANKFURT (Reuters) – A new round of cheap, multi-year loans from the European Central Bank will depend on whether euro zone banks are lending enough to each other, particularly across borders, a Bundesbank director said on Thursday.
Targeted long-term refinancing operations (TLTROs) have been one of the tools through which the ECB has flooded the euro zone with cash to stimulate lending and revive price growth.
With the latest TLTRO starting to mature in 2020, investors want to know if the ECB will offer a new round next year to ease the pressure on battered banks, particularly in Italy.
Sabine Mauderer, who heads the German central bank’s market operations, said that would depend on the state of bank-to-bank lending at that point.
“Whether longer-term refinancing operations will still be necessary depends, among other factors, on how functional the money market is and how well the cross-border liquidity rebalancing goes,” she told a conference.
This has been a key challenge for the ECB since the euro zone debt crisis of 2010-12. Most banks have retreated to their home turf and lent to each other almost exclusively against collateral.
Mauderer also raised the prospect of changing the ECB’s policy of granting banks access to unlimited cash at its regular auctions as long as they have collateral.
Introduced during the financial crisis and due to run at least until the end of next year, the ECB’s “fixed-rate, full allotment” tenders were a potent tool in circumventing a freeze in inter-bank lending at the time.
But their use has dwindled over the past few years as the ECB flooded the market with cash through the longer-term loans and bond purchases worth 2.6 trillion euros ($2.94 trillion).
The latter will stop at the end of this year, but the ECB has pledged to keep re-investing the proceeds for a long time.
This won’t be easy as not every issue that matures is immediately replaced by new supply from the same country — particularly in Germany, where the government runs a budget surplus and the ECB bought many short-term bonds.
Mauderer said ECB should be flexible when choosing which maturity to buy and when, confirming what sources had told Reuters.
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