Low loan demand pressed the European Central Bank to consider more radical measures such as quantitative easing (QE), although the idea still faces rejection from Germany, the largest economy in Europe.
Banks in Europe 82.600 million requested by the first of the operations scheduled long-term refinancing (TLTRO for its acronym in English) of European Central Bank, a total of 400,000 million euros , much less than analysts had expected.
This was a blow to the ambitions of Draghi to expand the ECB’s balance sheet to a trillion euros in order to encourage lending to small businesses of the region and to counter low inflation.
Inflation to 04%, still far from the ECB’s target of just below 2%. Meanwhile, investors remain hesitant about the ability of politicians to support prices fell on Thursday as an important indicator of inflation expectations over time.
The average rate of inflation to five years in five years fell 1.93% on Thursday, according to estimates by Barclays.
As interest rates are minimal, the only real option left in the toolbox ECB to reactivate an affected by weak demand and the conflict between East and West Ukraine economy is the quantitative easing (QE)-the large-scale purchase of government debt.
QE Expectations helped move the Eurofirst FTSE 300, which follows the evolution of the largest companies in the continent, a 0.9% higher rate. Bank stocks rose 1.3%, the index Eurofirst financial groups. Financing costs in the core countries of the eurozone, as Germany and France increased, while in the periphery yields fell.
“The ECB has set itself the goal of substantially expand its balance sheet ‘ says Krishna Guha, vice president of research firm ISI Group. . “But judging by the demand in the first TLTRO, will be very difficult to achieve with only the TLTRO and purchases of private assets that have been promised”
Guha added: “The problem is that [the ECB] has always allowed the market demand for their loans to determine the size of its balance sheet, instead of attaching himself through asset purchases. But what is optimal for banks need not necessarily be good for the economy. “
It is believed that the authorities of the Central Bank had relatively conservative expectations for demand in the TLTRO, and think that applications for the next round in December, will be greater.
By then, the Central Bank will have completed its comprehensive assessment of the health of banks in the region. It is thought that banks are reluctant to commit additional collateral in exchange for ECB funds before they have completed the test.
One of the entities that more funding was requested UniCredit, Italy’s largest bank, which received 7,700 million euros. Intesa Sanpaolo sued 4,000 million and plans to ask the rest of his assignment to 12.500 million in December, while Monte dei Paschi di Siena took 3,000 million.
The main banks Spain (Santander, BBVA, CaixaBank, Bankia and Banco Popular) requested a total of 14,750 million euros. The other banks that agreed to finance the Greek bank Alpha Bank asked 1,000 million.
According to analysts, the majority of cheap loans was oriented banks in southern Europe, although it is possible that some institutions in the region have opted to wait until December.
The fact that the application is more limited in the northern countries of the eurozone may reflect that banks have sufficient funding and there are low expectations of demand for loans among small and medium enterprises.
Deutsche Bank, the largest credit institution in Germany, not applied for funding through the program, and the major banks in Austria also stayed away.
In the Netherlands, ING plans to extract up to 5,700 million euros in two rounds. In France, both Société Générale and Crédit Agricole demanded money, but did not provide figures.
The ECB president said earlier this month that authorities would use TLTRO along with the program of purchasing asset-backed securities to increase the balance of the central banks of the euro to levels seen in early 2012 in the first half of that year, the balance exceeded 3 billion euros; Now, however, around 2 billion.
The TLTRO allow banks to take loans at a fair rate above the ECB’s refinancing rate of 0.05% until the end of 2018 provided they meet their objective of giving loans to companies. Failure to do so will have to repay the money in 2016
The next operation will take place in December.; then there will be four in 2015 and two in 2016 BCE granted no more than 1 trillion euros over the next three years.
According to a Bloomberg survey, economists expected the banks to request loans worth 174,000 million.
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