Banks lose interest in cheap financing of ECB

Noam Stiekema

Mario Draghi promise to provide cheap funding for banks, emphasizing the revitalization of the eurozone loses its attractiveness. The economists lowered their estimates of demand for program funding from the European Central Bank (ECB), designed to encourage the lending. The analysts estimate that banks will borrow up to 650 billion EUR within the program targeted […]

Mario Draghi ECB

Mario Draghi ECBMario Draghi promise to provide cheap funding for banks, emphasizing the revitalization of the eurozone loses its attractiveness. The economists lowered their estimates of demand for program funding from the European Central Bank (ECB), designed to encourage the lending. The analysts estimate that banks will borrow up to 650 billion EUR within the program targeted long-term refinancing operations (TLTRO). This is less than those in the poll last month 710 billion EUR. The lower expectations raising concerns that prospects for the currency bloc may be too poor to stimulate demand for loans. This undermines the impact of one of the tools of monetary policy to the European creditor to whom President Mario Draghi says it’s key to the recovery of the region.

In July Draghi revealed that the maximum size of the program should be 1 trillion EUR. On 7th August 2014 he said that the market calculations and indications of individual banks show that will be allocated between 450 billion EUR and 850 billion EUR. The creditors can apply for a loan from the ECB at an interest rate that is 10 basis points higher than the base rate of the bank. From June until he was at a record low 0.15%. First orders in September and December will be linked to existing bank lending to the real economy, and subsequent operations will depend on whether financial and insurance institutions increase the volume of credit portfolios.

The economists are now more pessimistic about prospects for the euro area economy compared to a month ago and the cheap financing of ECB. More than a quarter of respondents reported that conditions will worsen over the next four weeks compared to their share of 10% in July. Almost half determined inadequate structural reforms as the biggest risk, and 39% said the crisis in Ukraine.

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