TLTRO’s have been more effective than QE - Rabobank

Rabobank Global Economics and Markets Research team notes that the fourth and final allotment of TLTRO-II is scheduled next week and they expect a gross take-up of around EUR 30-35bn and a net take-up of EUR 10-15bn while adding that they believe that the TLTRO’s have been more effective than QE.

Key quotes

"Last year, the ECB surprised the market by announcing a second series of four targeted longerterm
refinancing operations (TLTRO-II). The programme aimed to encourage Eurozone
commercial banks to borrow money from the ECB at very favourable rates. In a context of
ongoing bank deleveraging, these measures were directly targeted at improving lending to the
real economy."

"The most important change to the first series of TLTRO’s was the incentive structure. Banks whose
net lending exceeds a specified benchmark – which are fairly easy to meet – are able to borrow
funds from the ECB at rates as low as the deposit rate of -0.40%.1 Since then, there have been
three allotments. The fourth and final allotment of the TLTRO-II programme is scheduled to take
place next week."

"In the March press conference ECB President Draghi announced that the Governing Council had
decided that there will be no new TLTROs in the foreseeable future. Even though there was some
noise going into the meeting that a new programme – or an extension of the existing one – would
be put into place, the GC didn’t even actively discuss the matter. According to Draghi, this could
be interpreted as a sign of the improved economic climate."

"Even though Draghi refrained from ruling out using TLTRO’s in the distant future, it means that
next week will see the last TLTRO-II operation by the ECB (TLTRO-II.4). The ECB will formally
announce the operation on Tuesday March 21 at 15:30 CET, after which banks can submit their
bids. The publication of the allotment results will be on Thursday March 23 at 11:30 CET. The
actual settlement takes place then on Wednesday March 29."