Big number!
425 banks took €330.5bn in ECB's TLTRO-III.7 operation, highest since June.
A positive sign for the banking sector and the real economy.
/thread
This large take-up will result in a €315bn increase in total TLTRO borrowing (to €2080bn excluding PELTROs) after €15.7bn mature from the final TLTRO-II.4 next week.
€330.5bn represents a 18% increase in total TLTRO borrowings vs. a 10% increase in borrowing capacity following the ECB decision (from 50% to 55% of eligible loans). It suggests that banks in the core have increased their borrowing more than proportionally.
This is particularly important because core banks, which have a good visibility over their lending performance vs TLTRO benchmarks, could be more optimistic relative to future lending including after the expiry of state loan guarantees.
Here's the TLTRO history chart, a thing of beauty indeed @natacha_valla.
Total longer-term liquidity provision will rise to €2106bn, above the €2 trillion mark for the first time ever.
With excess liquidity close to €3700bn and rising, today’s operation will make little difference to money markets. But if anything it confirms the importance of TLTROs as a central part of the ECB's toolkit. No need to ease conditions for now, but they are here to stay.
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Remember TLTROs?
The take-up at the 7th operation (TLTRO-III.7) will be published tomorrow at 11:30 CET. It will be the most important operation since June 2020 (when a record €1.3tn was allotted) as the ECB eased TLTRO conditions in December. (1/n)
The ECB increased TLTRO borrowing allowance from 50% to 55% of eligible loans (adding €290bn), and added three new operations between June and December 2021. Most importantly, the interest rate discount period was extended by one year, to June 2022. (2/n) ecb.europa.eu/mopo/implement…
Here’s the outstanding amounts of TLTRO borrowing by country as at end-January.
Total borrowing was €1792bn, or 56% of total allowances. Belgium (88% of allowances), Spain (74%) and Italy (73%) were among the largest TLTRO users. (3/n)
ECB QE data is out!
Bulk of PEPP still in public debt securities (93% of the €700bn so far).
A chartstorm 👇
Before we dig into monthly QE across countries and markets, last week's PEPP purchases were the largest in almost 6 months (€21.3bn).
Could be catch-up, could be that the ECB wanted to send a signal ahead of this week's meeting, but more likely front-loading before Xmas break.
ECB QE monthly data: stabilising ahead of Christmas break.
Average monthly PEPP was €66bn in Oct-Nov, of which €70bn per month in public debt (as CP holdings declined by €8bn).
The ECB's focus will be on the *duration* of policy support
more than on the *intensity* of asset purchases. The ECB could extend PEPP & TLTROs for even longer, although the consensus will have moved closer to our view by now. (2/n)
In order to extend the PEPP to June 2022, the ECB will need to increase its size by €450-850bn, so they could also surprise with a larger number (>€600bn).
We expect flexibility on both sides: the envelope might not be used in full, but they'll be ready to do more. (3/n)
A few charts from the @ecb Financial Stability Review.
1. Total net funding of euro area households, firms and sovereigns, including various EU support schemes ecb.europa.eu/pub/pdf/fsr/ec…
2. Bank loans to euro area corporates: more than 7% are affected by state guarantees, and 14% by moratoria.
3. Banks' Net Interest Income contracting due to margin compression. Overall profitability markedly lower due to loan loss provisioning too (though lower than predicted).
The rapid deterioration in macro/financial conditions will put a great deal of pressure on the ECB on Thursday.
How can they hint at an increase in asset purchases without saying it? What else could @Lagarde say or do? (1/n)
Even before the second virus wave hit, there was little doubt that the ECB would need to ease again by year-end, based on the PEPP's dual function, Philip Lane's “two-stage approach” and Fabio Panetta’s “asymmetric reaction”. (2/n)
The ECB will likely postpone a decision to December based on the updated/extented staff projections, aiming at a broader consensus. But now that downside risks are materialising, @Lagarde needs to do more than just “send a signal” to markets on Thursday. (3/n)
A few more charts on the euro area credit cycle.
September saw the first contraction in new bank loans to non-financial corporations in a year, but this came after the largest boom ever fueled by emergency measures and state guarantees.
Plotted along with the ECB's BLS, there's a lot of noise due to public guarantees for sure but the positive trend doesn't appear to be challenged yet. Expected demand for credit over the next 3 months actually improved slightly in Q3.
In terms of country breakdown, the slowdown in bank lending appears to be relatively broad-based post Covid surge, although Italy continues to look surprisingly resilient.