The European Central Bank is looking to ensure credit is flowing into Europe’s economy to support its recovery as COVID-19 pandemic drags on.
- EU banks are generating money from an ECB program that pays them to lend, boosting their earnings and helping offset some of the costs related to the continent’s long-running negative interest rates.
- The program reveals the degree that the ECB has been willing to maintain economies in the Eurozone afloat amidst the coronavirus pandemic by providing continuous liquidity to businesses to prevent a credit crunch.
- Incentives on loans are significant in Europe because companies depend heavily on borrowings from banks, unlike in the US, where companies regularly issue bonds.
- The targeted longer-term refinancing operations (TLTROs) were formed in 2014. The ECB improved the arrangement for banks last year by reducing the interest rate on its loans to nearly negative 1%.
In the recent round of the TLTROs program, banks took nearly $129 billion from the ECB. That brought the overall outstanding under TLRO to over € 2 trillion, roughly 50% of total excess liquidity in the Eurozone banking system.
Euro Stoxx 50 up +0.083%, EUR USD up +0.19%Source: The Wall Street Journal