Following the gradual demise of TLTROs, the banking sector as a whole does not appear overly reliant on Central bank funding. Excess liquidity with the ECB remains abundant and banks enjoy a large cushion of unencumbered government bonds to be used in secured borrowing. They have also increased outstanding debt securities, although at a cost that has hugely increased since early 2022. Private-sector deposits, after returning to pre-Covid levels, remained roughly stable, as banks prioritised short-term profitability and hence hesitated to use them to shore up funding. Deposits could, however, provide lenders with a source of additional funding to offset future liquidity constraints. This document was provided/prepared by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee.
Overly reliant on Central Bank funding? - Consequences of exiting TLTRO
Andrea Resti
2023
Abstract
Following the gradual demise of TLTROs, the banking sector as a whole does not appear overly reliant on Central bank funding. Excess liquidity with the ECB remains abundant and banks enjoy a large cushion of unencumbered government bonds to be used in secured borrowing. They have also increased outstanding debt securities, although at a cost that has hugely increased since early 2022. Private-sector deposits, after returning to pre-Covid levels, remained roughly stable, as banks prioritised short-term profitability and hence hesitated to use them to shore up funding. Deposits could, however, provide lenders with a source of additional funding to offset future liquidity constraints. This document was provided/prepared by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee.
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