EU regulators overseeing next year's long-awaited stress tests of the region's banks are preparing to penalise any lender that remains reliant on the ECB's landmark cheap funding scheme.
The move will cause further friction in the banking sector as it underlines the tension between the need to maintain liquidity to lenders and attempts to wean them off their dependence on ECB support.
The European Banking Authority, the EU’s umbrella regulator, plans to measure banks’ reliance on the ECB’s long-term-financing operation, or LTRO, according to people familiar with the watchdog’s thinking. Details of the test are still being drawn up but the plan would see the EBA mark down any bank that uses LTRO by comparing the subsidised scheme’s low financing costs with the real market funding rates the bank would otherwise have to pay. Such treatment risks stigmatising usage of the LTRO scheme, analysts say.
Mr Draghi has hinted that the current LTRO programme, due to end in early 2015, could be extended in order to stabilise weaker banks, though no firm commitment has yet been made. Analysts said an extension would be the elegant way out of a potential point of tension over the issue between the ECB, which is focused on averting crisis, and the EBA, whose priority is to test the system’s weak points. An extended timeframe for the LTRO programme would mean the EBA would not need to consider the “cliff risk” of banks shifting from cheap financing to more expensive or non-existent market funding.
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