Mario Draghi

As expected, President Draghi described the two 3Y LTROs as an “unquestionable success” which helped to re-open markets and lured even real-money investors back into the euro. With regard to the ultimate target of the operation, i.e. to restart the flow of credit to the private sector, he said that the ball is now clearly in the court of the private banks.

Mr. Draghi displayed great finesse in pooh-poohing the apparent rift with the Bundesbank regarding the volume of the LTROs, the quality of the collateral and their potential to send the Buba’s Target II claims into new dimensions. He provided bits and pieces to defuse German concerns about the size and the quality of the ECB’s balance sheet, by saying that its size – which has risen above EUR 3 tr – cannot be compared with that of the Fed or the BoE, as the Eurosystem holds many more assets unrelated to monetary policy operations. Furthermore, he revealed that only some EUR 53 bn of the potential new collateral of EUR 200 bn made available by the loosening of eligibility rules has actually been used (some EUR 40 bn by French banks) and this has even led to further over-collateralisation rather than new loans. However, the ECB would be well advised to publish unified statistics with all the relevant information.

Published by kind permission of Thomas Mayer.