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--ECB Discussions Have Touched On Possibility Of Extending Existing TLTROs
--New TLTROs Unlikely To Have Maturity Of More Than Two Years
     LONDON (MNI) - Discussions within the European Central Bank have touched
upon the possibility of extending existing targeted longer-term refinancing
operations, and any round of fresh cheap funding for banks will probably have
less generous terms and a duration of no more than two years, eurosystem sources
told MNI.
     While it is unclear whether the ECB will announce additional or extended
TLTRO money as soon as its March meeting, several Governing Council members are
already known to oppose any repetition of the last round of funding, which was
initiated in 2016 and provided four-year loans. Discussion has focussed on the
fact that many Italian banks in particular could find themselves falling short
of net stable funding ratio targets as of mid-year, 12 months before existing
TLTRO loans begin to come due.
     "Some countries, in particular some banking systems, might be interested in
getting something very long again, because they don't see it as liquidity
provision, they see it as a financing issue in the balance sheet of the banking
system," a eurosystem source said. "But this is not the basic logic of an
operation like this, and on the other hand there are some governors who are
strictly against a renewal of something like we had in the past, over, say, four
     While banks might lose TLTRO money from mid-year, the collateral pledged
against those loans will become available if they need to raise fresh funds, the
source said. One approach might be to push out the maturity dates of the
existing loans.
     "You have a sort of cliff effect when the end of the current TLTRO period
comes, but in principle the collateral is also released and can be used in
normal operations," the source said, referring to the possibility of providing
"a six- or 12-month operation to smooth out this possible cliff effect."
     Asked whether this meant pushing out the repayment period, the source said:
"Yes, yes."
     A second eurosystem official said that extensions of existing TLTROs had
been mentioned, if only at a committee level. Many at the ECB are attracted by
this idea, the second source said, adding that a possible complication might be
that some of the collateral might not be available for an additional period.
     A third official agreed: "A rollover would be one possibility."
     Any new TLTRO would lack many of the "peculiar" features of the existing
loans, whose rate can be as low as the ECB's -0.4% deposit rate depending on how
much participating banks lend, the third eurosystem source said.
     "I would guess that it will be a fixed rate or linked to the main
refinancing rate, but without any conditionality, for a shorter period, and I
wouldn't expect that they would limit the amount in any real sense."
     "I would bet that the decision will be taken in March, with the new
facility available from June. It's also possible they won't put a proposal to
the Governing Council, that it may just be the first round of discussion."
     The first two sources said two years would be a likely upper limit for the
term of any new TLTROs.
     "Once you're in a maturity of one year you have to get some sort of
liquidity to meet the requirements on the liquidity indicators," the first
source said. "Anything shorter than one year is therefore not of any help to
them, but something longer than two years is very unlikely."
     An ECB spokesman declined to comment on the subject of TLTROs.
--MNI London Bureau; +44 203 865 3829; email:
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