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     LONDON (MNI) - The European Central Bank, which surprised markets by not
making its new longer-term refinancing operations available until September,
only expects banks to take advantage of the cheap loans in significant amounts
in December, an ECB source said.
     The decision to provide a third round of TLTROs, with a two-year maturity
and conditioned on being used to fund lending to the real economy, came amid
concern that some banks, particularly in Italy, might fall short of their net
stable funding requirements as of mid-year, when the remaining duration of
existing TLTROs will begin to fall below the minimum 12 months.
     The acute need of Italian banks made deliberations over TLTRO III
particularly fraught, several ECB sources said, because the ECB cannot be seen
to tailor its policy to the needs of any one member country.
     "In the end what counted most was that the ECB was strongly of the opinion
that they shouldn't start in June - they wanted to de-link the decision from the
regulatory aspects concerning the net stable funding ratio," an ECB source said.
     "But the forecasts for the uptake, or the need for liquidity, tells us that
in June and even in September demand might be rather low. The first big uptake
could come in December," the source said.
     Policy makers were also keen to make the last iteration of TLTROs less
generous, and available for a shorter period than earlier rounds of four-year
loans.
     "The terms are still under discussion, but it could well be 25 basis points
above the refinancing rate," another ECB source said. "Take-up will be lower
than it was before. By how much will be interesting to see. As the existing
loans mature some banks are in a better position than they were, some still not,
and that will make the difference."
     An ECB spokesman, contacted by MNI, declined to comment.
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
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