(Bloomberg) — Banks tapped an expensive European Central Bank liquidity facility for the most cash in five years as cheaper, pandemic-era loans come to an end.
(Bloomberg) — Banks tapped an expensive European Central Bank liquidity facility for the most cash in five years as cheaper, pandemic-era loans come to an end.
About 75 institutions bid for more than €18.5 billion ($20.3 billion) at the ECB’s weekly Main Refinancing Operation, the largest amount since 2017. The surge in demand comes with lenders due to return more than €500 billion of cheap funding to the central bank this week from its targeted longer-term refinancing operations, known as TLTROs.
The deadline for the TLTRO loans, which were made to prop up the economy during the pandemic, marks the biggest redemptions in the emergency program so far. That’s led some traders to bet on the potential for market stress and focused attention on demand at the ECB’s key liquidity spigots.
Tuesday’s results “shows that maybe some banks are facing a few challenges with the repayment of the TLTROs,” said Theophile Legrand, a strategist at Natixis. “But we keep in mind that that’s only €18.5 billion.”
The Main Refinancing Operation, or MRO, provides cash at the main refinancing rate which is 50 basis points more than the ECB’s deposit rate — meaning a funding cost of 4% for borrowers.
Piet Christiansen, chief strategist at Danske Bank, pointed to the level of demand despite the high rate as being “the main story.”
Though the sum allotted was comparatively small, and pales in comparison with the trillions of euros of excess liquidity still in the system, he said he’s watching to see if this becomes “a market theme.”
The next test of banks’ funding needs will come on Wednesday, when the regular three-month Long-Term Refinancing Operation, or LTRO, takes place.
It could be that banks use the weekly MRO operation as a “bridge” for the three-month LTRO loans, according to Commerzbank AG.
A meeting last week of the ECB’s money market contact group, a forum between traders and officials, said there was an expectation that some banks, mainly small ones, would be using both the MROs and LTROs.
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