The European Central Bank will soon discuss new, multi-year loans to banks, its chief economist said on Wednesday, but he hinted that a new round of credit may not be as generous as a previous facility.
Banks, particularly in Italy and Spain, face a cliff-edge as the ECB’s 739 billion-euro ($839.13 billion) Targeted Long-Term Refinancing Operation approaches repayment dates in 2020-21.
Peter Praet’s comments suggested a new round of targeted long-term refinancing operation will be discussed as soon as the ECB’s next meeting, on March 7. But a decision, particularly on the terms of the loans, may have to wait.
“The discussion will come very soon in the Governing Council,” Praet told a conference in Frankfurt. “It doesn’t mean we’ll take decisions … at that time.”
The latest TLTRO was offered at a zero percent interest rate. Banks could even earn as much as 0.4 percent on the money they borrowed from the ECB if they passed it on to companies and households.
Praet said discussion of the parameters of any new loans was “a complicated thing, because it depends on the amount of stimulus you want to bring or not to bring.”
Providing a key argument for the loans, Praet argued that banks, already suffering from weak profitability, might cut credit to the real economy amid the recent slowdown.
That hasn’t happened yet, but new long-term funding would provide an insurance policy, especially since uncertainty is starting to feed through to businesses.
Sources told Reuters last year the ECB was considering offering the TLTRO at a variable rather than fixed rate and was also considering a shorter duration.
Reducing duration from the current four years and the amount on offer are some of the other options that analysts have speculated on.