The results of the ECB's 3 month and 12 month LTROs (Long-term Refinancing Operations), which it offered today, will be published at 11:15 am CET (03:15 am ET) on Wednesday.
The last time the ECB conducted a 12 month LTRO was in December of 2009. It discontinued them, thereafter, citing an easing in 'financial stress'. At the last ECB meeting, it announced they would be reintroduced given that 'stress' has re-emerged.
In plain English, European banks no longer trust eachother, so they are reluctant to lend to one another (except at ever higher rates). The 12 month LTRO enables banks to borrow from the ECB at the average of its benchmark rate (currently 1.5%) over the term of the loan.
The result will give us an indication of the liquidity squeeze banks are feeling and the degree to which they mistrust one another. The more they borrow, the greater the 'stress'.
How much is a lot? it may be tempting to make a comparison to the last set of 12 month LTROs, however, this time
expectations are for the ECB to cut rates over the next year, which wasn't the case last time around. If the ECB were to cut rates soon, banks would be better off parking excess cash in the deposit facility (as overnight borrowing would be cheaper). The last time around the first couple of LTROs were at a fixed rate, providing a hedge against an ECB rate hike.
So, how to jusge the outcome? A poll by Bloomberg indicated that the median expectation is for EUR 70 bln in loans, while respondents to the Reuters poll were eyeing EUR 60 bln. The EUR 60 bln - 70 bln range appears to be a reasonable baseline to judge the result.
If the result is massively to the upside, that may force the
Euro-lites to rethink wasting more time kicking the can down the road and into the abyss by releasing yet another communique of platitudes following their umpteenth meeting tomorrow.
No comments:
Post a Comment