On 5 June 2014, the European Central Bank ("ECB") announced aseries of targeted longer-term refinancing operations over a period of two years ("TLTRO"). Shortly thereafter, on 29 July 2014, the ECB published the details of the TLTRO. The aim of the TLTRO is to increase the granting of loans by participants (eligible counterparties, including banks) to, amongst others, SMEs and consumers, other than for the purpose of financing residential properties. The objective of the TLTRO is the same as for regular ECB funding. The first TLTRO was conducted on 18 September 2014. An aggregate amount of EUR 82.6 billion was borrowed for a term of four years. The second TLTRO is scheduled for 11 December 2014. In total, for the TLTROs in September and December 2014, participants may borrow an amount of EUR 400 billion, subject to individual borrowing limits. Additional operations will be carried out in March, June, September and December 2015 and in March and June 2016.

There are a few considerable differences between TLTROs and regular ECB funding. TLTROs have a longer term than regular ECB funding and are subject to certain (reporting) requirements. In addition, participants who have taken out an TLTRO or will do so in the future need to evidence that a certain portion of the TLTRO was made available to SMEs and consumers. In case it appears that the aggregate amount made available by a participant in a period from 1 May 2014 to 30 April 2016 is below a certain threshold, such participant will be required to repay the TLTRO in full by September 2016. For the six additional operations in 2015 and 2015, participants are subject to similar threshold requirements. Participants who did not participate in the first two TLTROs are entitled to participant in the TLTROs in 2015 and 2016. 

Interest rate and purchase programmes

On 4 September 2014 the ECB announced its intention to purchase ABS and covered bonds of banks within the European Union (the "Purchase Programmes"). According to Mario Draghi during a speech to the Economic and Monetary Affairs Committee of the European Parliament in Brussels on 22 September 2014, these measures are necessary as: "the economic recovery in the euro area is losing momentum". Further details of the Purchase Programmes were released on 2 October 2014. 

The Purchase Programmes concern (i) euro-denominated senior and guaranteed mezzanine tranches of ABSs and (ii) euro-denominated covered bonds issued in the euro area in both the primary and the secondary markets, and will last at least two years. In the second-half of October 2014 the ECB will start purchasing covered bonds and in the fourth quarter of 2014 the ECB will start purchasing ABSs. The ECB will purchase up to 70% of any deal. 

ABS and covered bonds may qualify under the Purchase Programmes provided that certain eligibility criteria are met, including a minimum rating requirement and eligibility under the existing Eurosystem scheme or monetary policy operations of the ECB. For ABSs and covered bond programmes in Greece and Cyprus which do not satisfy the minimum rating requirement, exceptions are made. The eligibility criteria for guaranteed mezzanine tranches of ABSs will be communicated at a later stage. Purchases of fully retained issues are possible.  

The Purchase Programmes are in addition to the targeted longer-term refinancing operations (TLTROs) (see the newsletter) and together they will further enhance the transmission of monetary policy. According to Mario Draghi: "With the Purchase Programmes, we are starting a transition from a monetary policy framework predominantly founded on passive provision of central bank credit to a more active and controlled management of our balance sheet".

Click here for the speech of Mario Draghi to the Economic and Monetary Affairs Committee of the European Parliament in Brussels on 22 September 2014. 

Click here for the speech of Mario Draghi to the Economic and Monetary Affairs Committee of the European Parliament in Napels on 2 October 2014. 

Click here for the details of the Purchase Programmes.