Danske Bank analysts note that the Euro area banks decided to take EUR3.4bn in TLTRO3.1 operations today and was markedly lower than expected (also lower than Danske’s below-market consensus of EUR20-30bn), however it will not impact the loose liquidity standards.
“The low liquidity take up needs to be seen in the context of changed terms last week where the ECB decided that the quarterly operations running until March 2021 should be each of 3-year maturity but also sweetened the rate by 10bp (now from MRO to deposit rate).”
“Today’s operation cannot be rolled into the 7 th and last operation in March 2021, as the early repayment optionality in today’s operation only falls in September 2021. That may also have been a reason for the low take up. However, we expect the ECB to extend the TLTROs as we believe it is an underappreciated and uncontroversial tool.”
“The maximum potential take up of 30% of eligible lending leaves more space in core countries than in peripheral countries. We estimate that on a banking system level, German banks would be able to take up to EUR368bn over the 7 operations. Similarly, Italian and Spanish banks could take up to EUR43bn and EUR44bn respectively.”