ECB Insight: ECB Ready to Handle Potentially Large TLTRO Repayment End-June

25 April 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank is ready to deal with the possibility of an outsized repayment two months from now of funding provided banks under the ECB’s targeted longer-term refinancing operations (TLTROs), Econostream understands.

With net stable funding ratio rules limiting the value to banks of money due in less than one year, institutions that benefitted from the large TLTRO maturing on 28 June 2023 can be expected to take advantage of the option to repay. The voluntary early repayment settlement date is coming 29 June.

A sizeable repayment could conceivably have an undesirable impact, with the collateral that gets returned potentially putting pressure on spreads, for example.

‘It was discussed many times, and at least until now, the guys who are dealing with the banking system assured us that they discussed it with the biggest borrowers in the TLTRO, and from that perspective everything should be okay’, one ECB insider told Econostream.

‘The supervisory guys are telling us that there will be some repayments, but they already know what the options for dealing with that are’, he added.

Another ECB insider alluded to possible options, saying that ‘there is quite a lot of flexibility in the sense that if there is a need, then we could give them some kind of a bridge financing, some type of refinancing operation.’

‘If you’re thinking about the tightening, then it’s not about the liquidity part, we are rather talking about hiking rates first and then in the future we start thinking about liquidity conditions’, he continued. ‘It wouldn’t be the right moment to shock the market by taking liquidity away.’