“The decision to cut the refi rate by 10bp to 5b, bringing it de facto to the lower bound, has not incentivised banks to participate (…) as the depo rate cut to -20bp has increased the cost of depositing excess liquidity for long cash banks, thus offsetting any benefits from the reduced costs of TLTRO borrowing,” Morgan Stanley commented on Thursday
However, the next TLTRO in December is likely to be higher as many lenders also from core countries are likely to participate. By then they will have a clearer idea of their needs after the AQR and stress tests (which will be published at the end of October) and will have completed their budget allocation for 2015.
The TLTRO solves liquidity problems until 2018. However, the impact on the real economy will depend on financial institutions’s ability to fund new credit depending on their available capital and their solvency ratios.