In response to the financial and economic crises that have occurred since the global financial crisis of 2007-08, the Eurosystem has introduced several refinancing operations, in euros and in foreign currency, with longer maturities than standard operations and, in some cases, with the aim of directly supporting the provision of bank credit to the real economy.
Longer-term refinancing operations (LTROs) with maturities of six months to one year - These refinancing operations with a maturity longer than three months were first introduced in 2008 in response to the global financial crisis and helped to meet the banking system's growing funding needs.
Three-year LTROs - Two refinancing operations conducted between the end of 2011 and the beginning of 2012, with a maturity of three years and the option of early repayment after one year. These operations, for which the rate was fixed at the average rate of the main refinancing operations conducted over the life of each operation, were aimed at supporting bank lending and money market liquidity in the euro area.
TLTROs - targeted longer-term refinancing operations - First introduced in September 2014, targeted longer-term refinancing operations (TLTROs) have aimed to offer funding with even longer maturities (up to four years), at more favourable conditions than on the market, in order to stimulate bank lending to the real economy against the backdrop of a persistently low inflation and negative interest rate environment. For a description of the three programmes, see the box below.
PELTROs - pandemic emergency longer-term refinancing operations - Launched in spring 2020, PELTROs were introduced to preserve the smooth functioning of the money market and guarantee sufficient liquidity for the banking system during the COVID-19 pandemic. These operations offered particularly favourable conditions, with an interest rate set at 25 basis points below the average rate on the main refinancing operations.
Foreign currency refinancing operations - Introduced in 2007, these liquidity-providing operations have been an effective instrument to respond to the tensions in the international financial markets, in particular in relation to demand for US dollars.
Targeted Longer-Term Refinancing Operations (TLTRO I, II, III)
Starting in 2014, the Governing Council of the ECB introduced three separate TLTRO programmes to provide euro area credit institutions with funding with a maturity of up to four years. These operations were aimed at improving the functioning of the monetary policy transmission mechanism and stimulating bank lending to the real economy. In all transactions, the participating credit institutions were able to take part either on an individual basis or as the lead institution of a pool of credit institutions set up for that purpose. In the latter case, the liquidity assigned through individual operations was subsequently redistributed by the lead institution to the group members on the basis of specific agreements.
In the first two programmes (TLTRO I from September 2014 to September 2018, and TLTRO II from June 2016 to March 2021), the funding that banks could obtain was linked to their lending to non-financial corporations and households (except those for house purchase). In the third programme (TLTRO III, from September 2019 to December 2024), lending to the real economy also influences the cost of the operation: the interest rate applied is indexed to the rate on the main refinancing operations, with the further benefit of reductions in the interest rate for banks that are able to achieve certain lending objectives.
Since its inception, the TLTRO III programme has been revised several times. In December 2020, in view of the economic fallout from the pandemic the Governing Council decided to further recalibrate the conditions of the third series of targeted longer-term refinancing operations (TLTRO III) making them more favourable for participating banks. In 2022, the unexpected and exceptional increase in inflation prompted the Governing Council to take a number of decisions aimed at monetary policy normalization: these included the decision of 27 October to bring the conditions applied to the TLTRO III operations back to a level consistent with market conditions.
LEGAL AND CONTRACTUAL REFERENCES - TLTRO III
The contracts and operational instructions for participation with the Bank of Italy can be found at the following links: 'Contracts' (only in Italian) and 'Operating guides' (only in Italian).
- Consolidated text: Decision (EU) 2019/1311 of the ECB of 22 July 2019 (external link) on a third series of targeted longer-term refinancing operations (ECB/2019/21)
- Bank of Italy – Reporting instructions for TLTRO IIIpdf 1.0 MB (only in Italian) Publish date::11 May 2021
Further details from the ECB website - TLTRO III
- Revised indicative calendar for TLTRO III voluntary repayments, published 27 October 2022 (external link)
- Indicative calendar for the third series of targeted longer-term refinancing operations (TLTROs-III) (external link)
- Template for calculating the TLTRO III interest rates applicable to repayments at maturity or voluntary repayment (updated on 27/10/2022) (external link)
- FAQs on TLTRO III operations (external link)
