ECB Closing In On Rule Change To Shave Banking Profits (RTRS Sources)

RTRS sources note that “policymakers reviewed five options at a seminar earlier this month to change the rules of these Targeted Longer-Term Refinancing Operations (TLTRO), all of which were deemed somewhat problematic because they raised a legal or political hurdle, or went counter to other policy goals.”

• “The five options were then narrowed to three, and staff are working on refining them.”
• “All sources said that a decision could come at the Oct. 27 policy meeting because there's little benefit in waiting.”
• “The impact of the move would be worth around EUR30-40bn a year, one of the sources said, while a second source said the impact could be much higher if rates rise as markets now expect.”
• “Out of the three remaining options, the simplest would be to unilaterally change the terms of TLTROs, so cash parked back at the ECB would not be remunerated at the deposit rate.”
• “Another option would be that cash from TLTROs would be treated on similar terms as minimum reserves kept by commercial banks at the ECB. Such reserves are now remunerated at 0.5%, below the ECB's deposit rate.”
• “A third option would be to create a sort of tiering that would allow banks to enjoy more favorable up to a certain threshold, after which a lower rate would apply.”
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