MNI SOURCES:TLTROs May Be Extended; Any TLTRO3 Shorter, Dearer

--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

years."

     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."

     --ROLLOVER

     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: jason.webb@marketnews.com

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