(Finance) – Le Eurozone banks they decided to repay only about 296 billion euros in advance of long-term refinancing TLTRO IIIan amount much lower than expected by economists (about 500-600 billion euros), after the European Central Bank (ECB) tightened the conditions for financing maxi-loans.
Refund represents just under 15% of the total outstanding amount of so-called TLTRO loans, used during the pandemic to keep credit flowing to households and businesses. Thanks to this tool, the banks were able obtain funds from the ECB at a favorable rate, equal to -1%, i.e. 0.5 percentage points lower than the ECB rate on deposits with the central bank. Banks benefited from this lower rate if they continued to lend to businesses and households.
Last October 27th the Governing Council of the ECB has decided to change the terms and conditions applied to TLTRO III “in the light of the unexpected and exceptional increase in inflation, the instrument needs to be recalibrated to ensure that it is consistent with the broader process of normalization of monetary policy and enhances the pass-through of key rate increases under the conditions of granting of bank credit”.
At that meeting the Governing Council decided to change the interest rates applicable to the TLTRO-III from November 23rd 2022 and to offer banks additional dates for the voluntary early repayment of the amounts.
The next windows are expected on January 25th and the February 22, 2023. The deadline for notifying redemptions for the November 2022 option is one week before the early redemption settlement. The normal term is two weeks. The shorter period of November 2022 has been implemented to allow counterparties more time to analyze the consequences of the recent changes to TLTRO III before making a decision.