The European Central Bank (ECB) allotted 529.5 billion euros to 800 banks that participated in the ECB's second LTRO (Longer-Term Refinancing Operation). This compares to December's LTRO, in which 489 billion euros were allotted to 500 banks. The ECB next meets to review monetary policy settings on the 8th of March. The ECB last cut its main interest rate by 25 basis points to 1.00% in December last year. The Euro is down about 2% against the US dollar over the past year, with the EURUSD exchange rate last trading around 1.337.
Good outcome, more than expected, lots of banks involved, should be helpful to the European situation...
ReplyDeleteDo you think? This is already at market consensus. If they think money is infinity, this is really a good news.
ReplyDeleteIn my opinion market is just getting some time, but we will see bad days in next months.
Well this LTRO + the December one now fully covers Euro bank bond maturities in 2012 and 2013, so the Euro banks now effectively have their funding sorted through to 2014. So that's liquidity solved in the short-term....
DeleteNet liquidity added to banking system (after subtracting rollovers) = estimated EUR 313B, compares to previous EUR 210B
ReplyDeleteNot bad...
Last time I heard about LTRO the banks returned the money from ECB within days, what happened?
ReplyDeleteThe LTRO basically gives the banks very cheap funding for about 3 years. Given that European banks had come under some funding pressures it makes sense for the banks to take advantage of the facility from a funding perspective. It also makes sense from a profitability perspective; just find some sort of investment with a similar maturity and collect the carry. In fact, some people have called the LTRO an intermediated form of quantitative easing because the banks can borrow cheaply through the LTRO and then buy Italian and Spanish government bonds; thereby pushing yields down.
DeleteStill think the ECB can do more though, it's not like the LTRO funds will actually be lent out to real businesses anyway, the ECB should be much more agressive given that the EU is in recession
ReplyDelete