Thursday’s chart: LTROs vs real economy

LONDON | Now that the European banks have again been placed in the eye of the storm, even though admittedly some more than others, a chart from BNP Paribas analysts shows why. Banks still pose a barrier at the core of most efforts towards recovery.

Take the long-term refinancing operations or LTROs from the European Central Bank: they are meant to help inject liquidity into starved euro economies. Spain and Italy would have gained access to financing in spite of the high costs imposed by the markets, which in the 10-year Spanish bond case are beyond the 6 percent interest rate. The trick is that entities, once they get fresh aid in the form of cheap credit from the central bank, should spread the capital, enhancing growth opportunities for small and medium-sized companies and retail borrowers. But they do not.<

how do you get your best friend to break up with your ex/strong> Instead, they either buy sovereign bonds so States' Treasuries can breathe for longer or simply deposit the cash in the central bank, in exchange of a bland but safe profit line.

During the first LTRO, European banks were given €489 billion in low-cost loans in December 2011, and an average volume of €468.3 billion remained deposited with the central bank until February. In the second LTRO, the central bank distributed €529.5 billion, and the average total figure of deposits with the central bank reached €775 billion.

Banks feel insecure, not only about the soundness of their portfolios but about government policies, too, obsessed with new banking and financial regulations but forgetful that they must clean their own houses.



About the Author

Victor Jimenez
London contributor at, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.