It takes a bankruptcy like that of Austrian real estate giant Signa to show how much European borrowers have come to depend on low interest rates. And the impact of European Central Bank tightening policy was accelerated by the withdrawal of a pandemic-era funding measure – the Targeted Long-Term Refinancing Operation (TLTRO) – which offered cheap long-term loans via banks.
Banks that used the facility to make customer loans paid a negative rate to the ECB, in other words the central bank paid them to borrow the money. However, in November 2022 the ECB abruptly changed the terms of the TLTRO, requiring banks to pay a market rate for the first time.
|
This visualisation shows the history of two components of the European Central Bank balance sheet: the Public Sector Purchase Programme, or holdings of euro area government bonds (red line) and the Targeted Long-Term Refinancing Operation (TLTRO, blue line). After the ECB changed the terms of the TLTRO loans, in 2023 banks repaid the loans and unwound associated derivatives contracts, reporting losses. |
As a result, TLTRO usage plunged from its peak of €2.2 trillion to just €500 billion today, a decline which contrasts with the ECB’s far more leisurely reduction of its €3 trillion securities portfolio.
