19 November 2013

FT: EU banks race to end reliance on ECB aid

European banks have accelerated their repayment of more than €1 trillion in cheap central bank loans, as they seek to burnish their balance sheets ahead of key stress tests by regulators next year.

Eurozone banks are under increasing pressure to reduce the amount of LTRO monies they borrow for fear of being penalised by the European Banking Authority, the EU’s umbrella regulator. For its part the EBA plans to measure banks’ reliance on LTRO funds. The first LTRO payback deadline is January 2015.

Eurozone banks have repaid €380.7 billion of LTRO monies to date; there is €637.9 billion outstanding according to ECB figures. However, Mr Draghi has said the ECB, which expressed worries about money market lending rates creeping upwards, could yet initiate another LTRO to prevent a “liquidity accident”.

Analysts have said an extension of the existing LTRO would be one 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 brittle points. An extended timeframe for the LTRO programme would mean the EBA would not need to consider the so-called “cliff risk” of banks shifting from cheap ECB financing to more expensive or non-existent market funding.

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