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Edition 5 April 2016 - Crédit Agricole S.A.
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  • Edition 5 April 2016

    Eurozone – ECB: no silver bullet for lending

    We look back at the ECB's 10 March announcement, especially in connection with the TLTRO 2 operations and analyse their implications from the banks' viewpoint. This new programme should elicit more interest than TLTRO 1 and help to revive the transmission of monetary policy on lending interest rates. But this in no way guarantees its effectiveness in re-launching lending to businesses.

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  • Contents:

    - Limited effectiveness of monetary policy on the lending channel so far
    - TLTRO 2 more attractive to banks, especially in peripheral countries
    - Reactivating the transmission of monetary policy on rates...
    - ... with an uncertain impact on volumes

  • Extract:

    The combination of a QE policy that automatically generates excess liquidity in the eurozone banking system and of a negative interest rate on the deposit facility de facto creates a tax on liquidity at the aggregate eurozone level. However, banks are unevenly exposed to this: those in peripheral countries are the main beneficiaries of Central Bank refinancing lines (68% of the total), but contribute very little to excess liquidity (4%) and, as a result, are less penalised by its cost. On the other hand, they will be the principal beneficiaries of TLTRO 2, independently of the interest rate applied (from 0% to -0.4%).

  • Annual growth in eligible loans

    A -0.40% interest rate on TLTROs would apply providing that bank lending to non-financial customers (excluding mortgages) exceeds a target, specific to each country, by 2.5% by January 2018. This would correspond to a compound annual growth rate in eligible lending of close to 1% in the euro area, which seems not difficult to reach.

    Annual growth in eligible loans
  • Associative topics : Banking and Insurance | Economics | Europe


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