Targeted Longer-Term Refinancing Operations

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The targeted longer-term refinancing operations (TLTROs) provide financing to Eurosystem credit institutions with maturities longer than one year. They are designed to improve the functioning of the monetary policy transmission mechanism by stimulating bank lending to the real economy.

The TLTROs conducted until March 2017 were launched as part of two distinct programmes: TLTRO I, announced in June 2014 and comprising eight auctions, and TLTRO II, announced in March 2016 and comprising four auctions. In both programmes, the amount that banks could borrow was linked to their loans to non-financial corporations and households (except those to households for house purchase).

In March 2019, the ECB Governing Council announced a third series of quarterly targeted longer-term refinancing operations (TLTRO III), to be carried out starting in September 2019 and ending in March 2021. Like the previous programmes, the operations will feature built-in incentives for credit conditions to remain favourable.

In September 2019, in light of the less-favourable economic outlook, the Governing Council decided to change some of the parameters of the operations.

In March 2020, in order to address the adverse impact of the coronavirus pandemic, the Governing Council introduced more favourable conditions for TLTRO III operations, to be applied in the period from 24 June 2020 to 23 June 2021. On this occasion, the Governing Council raised the borrowing allowance to 50 per cent of the stock of eligible loans as at 28 February 2019, removed the bid limits per operation and introduced an early repayment option after one year from the settlement of each operation, starting in September 2021. In April 2020, an additional decision was taken by the ECB to recalibrate TLTRO III conditions through a further reduction in the interest rates and an improvement of the incentive mechanism.

In December 2020, in view of the economic fallout from the resurgence of the pandemic, the Governing Council decided to further recalibrate the conditions of the third series of targeted longer-term refinancing operations (TLTRO III). Specifically, it decided to i) extend the period over which considerably more favourable terms will apply by twelve months, to June 2022, ii) conduct three additional operations between June and December 2021 and iii) introduce a new lending  performance evaluation criterion for the purpose of determining the remuneration conditions of the operations. Moreover, the Governing Council decided to raise the total amount that counterparties will be entitled to borrow in TLTRO III operations from 50 per cent to 55 per cent of their stock of eligible loans as at 28 February 2019.

On 29 January 2021 the Governing Council decided that TLTRO III groups may include additional credit institutions as new group members, provided that these new members are not part of another recognised TLTRO III group, and counterparties that have been participating so far on an individual basis may form a new group. This option has only been authorised in view of the seventh TLTRO-III.

On 30 April 2021, the Governing Council introduced further amendments to the TLTRO-III legal framework with the aim to i) review the sanctions related to non-compliance with the deadlines set for submitting reports and auditors' evaluations, ii) clarify the cases in which participants are permitted to switch from individual to group participation or join existing groups as well as the procedure to be followed in such cases, iii) introduce an exemption from the obligation to submit an additional auditors' evaluation due to corporate reorganisations or changes in the composition of groups and iv) clarify the reporting requirements and relevant interest rate calculations in the event of a change in the group composition or of a corporate reorganisation that occurs between 1 April 2021 and 31 December 2021.

Each operation will have a duration of three years and will be conducted at a rate equal to the interest rate on the main refinancing operations over the life of the respective TLTRO III, with the exception of the period from 24 June 2020 to 23 June 2022, in which there will be a further reduction of 50 basis points. Counterparties whose lending performance in the specified periods achieves the required targets could benefit from a further interest rate reduction. Further details about the TLTRO III programme can be found in the ECB's press releases, published on 6 June 2019, 12 September 2019, 12 March 2020, 30 April 2020, 10 December 2020 and 30 April 2021 as well as in their special section on TLTRO operations.