Options Embedded in ECB Targeted Refinancing Operations

Abstract

In June 2014, the European Central Bank (ECB) announced the implementation of new refinancing operations aimed at supporting bank lending to the non-financial private sector. This paper exhibits and prices options embedded in these Targeted Longer-Term Refinancing Operations. In particular, it shows how these options participate to the incentive mechanisms at play in these operations. Quantitative results point to substantial gains -for participating banks-attached to the satisfaction of lending conditions defined by the scheme.

The transmission of unconventional monetary policy to bank credit supply: Evidence from the TLTRO

“…The conditions of the TLTRO are a key aspect for its success. For instance, banks seem to prefer a longer‐term refinancing rather than a roll‐over of short‐term monetary policy refinancing operations, not only due to the uncertainty on the maintenance of the FRFA in the OMO over the subsequent years, but also for regulatory reasons, for instance longer‐term operations contributes to the fulfilment of the net stable funding ratio (NSFR) (Renne, 2014).…”

The Transmission of Unconventional Monetary Policy to Bank Credit Supply: Evidence From the TLTRO

“…In fact, the conditions of the TLTRO are a key aspect for its success. For instance, banks seem to prefer a longer-term refinancing rather than a roll-over of short-term monetary policy refinancing operations, not only due to the uncertainty on the maintenance of the FRFA in the OMO over the subsequent years, but also for regulatory reasons, for instance longer-term operations contributes to the fulfilment of the net stable funding ratio (NSFR) (Renne, 2014).…”