ECB TLTRO Subsidy Will Delay Rate Corridor Narrowing

Conditions on the European Central Bank’s targeted longer-term refinancing operations will allow banks -- whether they reach their lending targets or not -- to make a sizable profit boost from borrowing at lower rates than they can get from depositing money at the central bank over the coming years, according to Bloomberg Economics. The current 50-basis-point gap between the deposit and main refinancing rates helps to reduce the subsidy to banks that didn’t reach their targets. The sums at stake will be significantly reduced next June when 1.2 trillion euros ($1.2 trillion) in TLTROs mature, creating an opportune time for the ECB to restore symmetry to the corridor.

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