Even if it goes unnoticed in the middle of the sea of liquidity infused through the various QEs, yesterday the ECB made public the results of the banking system's financing operations, TLTRO III, the third phase of the Targeted Longer Term Refinancing Operation), and the results were very interesting.
In total, € 1.3 billion was distributed to 742 banking institutions. Interest rates are -1% for the first year and -0.5% for the second and third years. so the ECB is paying banks to borrow money. What do the banks make of this money?
- the foreign ones make healthy Carry Trade, that is, they buy Italian government bonds, with a positive yield, using the funds of the ECB;
- the Italian ones would have the advantage of giving the famous loans guaranteed by the state at 0.6% 0.7%, gaining a safe 1.7% the first year and 1.2% the second and third. A good return, in a moment of uncertainty, if the Italian banks were not too greedy …
In reality, the banks have used these 1.3 billion TLTRO III also to replace the previous past due loans of TLTRO II and LTRO on a weekly basis. To be precise, 550 billion have been new liquidity, while 760 are replacing other previous loans.
The financial position of the ECB vis-à-vis the banking system is at its maximum, with a total of over 1.5 billion. We are 40% above the last peaks, dating back to 2012, when we were still in the midst of a debt crisis and it was thought that the euro could jump.
We are now 40% above that moment. This gives you an idea of how difficult the crisis is, and how much this will bring about destruction in the economic system.
Article 1.3 BILLION FOR BANKS: THE ECB FLOODS THE BANKS OF LIQUIDITY TO -1% comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/13-miliardi-per-le-banche-la-bce-inonda-le-banche-di-liquidita-al-1/ on Fri, 19 Jun 2020 06:22:00 +0000.