,
6 tweets,
3 min read
Read on Twitter
ECB's TLTRO-III - what matters and what doesn't. A thread including recent comments and our latest thoughts. (1/n) 
It doesn’t matter that the we or the stock market were disappointed. What matters is that the policy tools are “carefully calibrated”, as Coeuré said, for the ECB to succeed in reflating the economy, which would lead to a steeper curve eventually. (2/n)
It doesn’t matter that TLTRO-III are unlikely to lead to a large increase in the ECB’s balance sheet or excess liquidity (€200bn in our most optimistic scenario). What matters is that TLTRO-III are providing banks with a rolling facility for term funding through 2021. (3/n)
Our optimistic projections of a €200bn net increase in TLTROs assumes a 20 to 40bp premium below the refi rate for banks exceeding a net lending benchmark. Hard to see any extra demand with a rate at, or above the refi given the limited TLTRO-III borrowing capacity. (4/n)
What matters is what the banks will do with the cash, having reduced their holdings of government debt securities by over 20% since the beginning of ECB QE in Q1 2015 while expanding their stock of loans to the non-financial private sector by 9%. (5/n)
What matters above all is what governments and European institutions will make of this opportunity to lock in cheap funding. A more ambitious (fiscal) response is badly needed or the euro area may face ‘Japanization’ in its own way, for better or worse. (6/6)
