The ECB is making banks an historic negative interest-gift
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Status: 18.06.2020 | Reading Time: 3 Minutes
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ECB grants new loans in the amount of 1.31 trillion euros
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The European Central Bank has provided banks in the Euro area in the Corona-crisis loans in the trillions of dollars. The interest rate of the loans is in the minus range. Banks thus receive a bonus when you can access the funds.
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Earlier the institutions had to borrow at the Central Bank money and for a certain interest rate to pay. In the meantime, however, the ECB pays the banks to ensure that they take money from you. Now the guardian of the currency, to distribute a new gift. It is as big as ever.
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“What is a break-in at a Bank against a founding of a Bank?” Never Bertolt Brecht with his quip had more rights than today. He could not even guess what land of milk and honey would be entering the financial industry one day.
Earlier the institutions had to borrow at the Central Bank money and for a certain interest rate to pay. This liquidity, in turn, they passed on with an interest premium as a credit to company or home Builder. The usually small margin was their business. If the debtor was insolvent, they had to write off a portion of the loan amount.
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In the Corona-crisis, but the state guarantees many of the loans awarded by the banks to companies. Thus, the risk of default is reduced. In addition, the business plan will get banks to the European Central Bank (ECB) money is not only paid, but for every dollar you raise for the custodians, even a small premium above.
Since the banks would obviously not have to ask twice: credit institutions have covers at the most recent monetary salve to the ECB with more than 1.3 trillion euros. After notification of the ECB 742 banks took part in the fourth long-term targeted Refinancing operation of the third series, in the Jargon TLTRO3 called, and got a total of 1308,43 billion euros for 1099 days.
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This is the highest amount of such money transactions, has ever given. The previous record for long-term loans had been marked in the Euro debt crisis in 2012, with 500 billion.
The stunning amount of credit that the banks and now the ECB, is due to the attractive terms and conditions, the grant to the Central bankers. Since the Deposit rate is minus 0.5 percent, the money houses, so money for you to borrow money.
Very good business: interest rates for Borrowing and lending
Better yet: If the institutions meet certain lending targets, you get an additional Bonus of 0.5 percentage points. With other words: you get in the best case, a percent interest for a loan, you record yourself. “The conditions were so attractive that there was here as Bank not Over,” said Economist Thomas Gitzel by VP Bank.
Banks will use about half of the loan amount for previous ECB long-term loans to replace the significantly worse conditions to have. Hopes can also the cash-starved States. So experts expect that especially banks from the peripheral countries of southern Europe will be hit the government bonds of their countries.
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This is because, unlike Federal loans title throw about Italian debt is still a positive return. Five-year-old papers reindeer with 0.67 percent. Who gets of the ECB to minus one percent, can make a very good business. Now Italian institutions are holding more than 420 billion euros of bonds in the boot state, that is, approximately every tenth Euro in the balance sheet.
“Actually, banks should be removed from the Yes to the Engagement in domestic bonds, to the fatal interdependence of countries and their banks are in crisis, to resolve the case, finally,” says Marchel Alexandrovich, Economist at Jefferies. “But this view is changing, because the States in urgent need of buyers for their debt.” The ECB, however, is hoping that the fresh money will arrive also in the case of firms in the real economy.
“The TLTRO could be an important incentive for, and triggers of lending and is likely to be an important tool in the Toolbox to remain on the ECB” write the analysts of Nordea.
The Mega-money business will inflate the ECB’s balance sheet more. For the first time in history you could rise to six trillion euros, which would correspond to approximately 50 percent of the economic performance of the Euro-Zone.
Bank stocks benefited on Thursday only in the short term, from the Mega-business. The Institute, in the best case get around 13 billion euros from the ECB as a gift. A sum that would have impaled Bertolt Brecht with relish.
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