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In March European Central Bank (ECB) launched a package of stimulus measures, some of which has already kicked in such as an increase in asset purchases and buying of corporate bonds and today, another measure, free money to banks will begin for the first time. In March, ECB launched four new Targeted Long-Term Refinancing Operations (TLTROs), where the money will be lend to banks at zero cost or in some cases it may go to negative and up to ECB deposit rates, which is currently at -0.4 percent. This measure is known as TLTRO II.
Banks will be able to bid for up to 30 percent of their outstanding loan stock, and should then use the cheap funding to increase lending to householders. In addition, banks could recoup €4 for every €1000 lent out, in line with the ECB’s current deposit rate of -0.4 percent. This is a four-year financing for the banks.
The first auction of the TLTRO II is scheduled today and other three are scheduled for September 2016, December 2016, and March 2017.
The take-up will be announced on Friday and is a vital piece of data which will be one of the key determinants in estimating the size of ECB’s balance sheet.
