A Primer Surrounding Impending TLTRO Repayments & MRO Demand

We have previously noted worry re: the liquidity situation at the small Italian banks ahead of tomorrow’s sizeable TLTRO repayment (Italian banks have a little over €140bn to service).

• Worries seem to have moderated, although today’s ECB MRO is generating plenty of interest after President Lagarde pointed to the availability of existing facilities when questioned on any liquidity worries surrounding the TLTRO repayment. That came in the wake of speculation that the Bank could deploy some form of bridging loan facility.
• Commerzbank have flagged ‘normal’ MRO demand of €1-2bn in recent times.
• Larger Italian institutions have ample liquidity coverage ratios vs. TLTRO repayments, while some of the smaller banks seemingly have a shortfall.
• Strong BTP Valore demand also presents a headwind for Italian bank liquidity via diminished deposits.
• Sell-side names point to a lack of pressure in Italian repo, noting Italian banks also have government bonds on hand to repo (at a lower cost than the MRO). UniCredit recently flagged that “Italian banks have ~€85bn of government bonds excl. BTPs, which can be used to optimise repo costs” (vs. an estimated medium-term TLTRO funding gap of ~€70bn).
• While relatively isolated cases of funding/liquidity pressures cannot be ruled out, the sum of the above picture should mean that Eurozone funding rates remain relatively well insulated, given the existing levels of liquidity in the Eurosystem, with a modest upward adjustment (over time) seen by many.