FRANKFURT: Euro zone banks took less money than expected in the European Central Bank's weekly refinancing operation after showing limited interest in the ECB's first round of new ultra-long loans, or TLTROs, last week.
Banks took 90.3 billion euros in the ECB's main refinancing operation on Tuesday compared with 105.7 billion euros that expired. This was the lowest amount allotted since March.
A Reuters survey of 21 traders had forecast banks would borrow 100 billion euros in the regular weekly tender.
"Ninety billion is a still a decent number," said Frederik Ducrozet, senior economist at Credit Agricole CIB. "There is a core structural demand for weekly operations that may remain regardless of what happens with the TLTROs and asset purchases."
Banks have been reluctant to tap the new long-term funds as they can still use the ECB's regular operations at a cheaper rate. Banks can borrow at 0.05 percent from the ECB, but have to pay an additional 10 basis points for the four-year loans.
On Thursday, an ECB three-month tender of 10.4 billion euros matures and banks are expected to take 8 billion euros to replace them, the Reuters survey showed. The allotment will come on Wednesday.
The new three-month operation will mature a day after the next TLTRO is settled, on Dec. 18, an ECB calendar showed.
WAITING FOR DECEMBER
Demand for the ECB's first offer of four-year loans, or TLTROs, fell flat on Thursday when banks took 82.6 billion euros, far below the 400 billion euros they can potentially borrow in the September and December operations combined.
In addition, banks opted to repay this week almost 20 billion euros of the crisis loans they took in late 2011 and early 2012, which expire early next year - the largest repayment since mid-July.
Markets were disappointed by the low TLTRO take-up and begun speculating whether the ECB would consider broadening its asset purchases to reach its desired balance sheet expansion.
ECB President Mario Draghi said earlier this month the ECB aimed to bring its balance sheet "towards the dimensions it used to have at the beginning of 2012" with the TLTROs and by purchasing securitised private debt.
The balance sheet stood at around 3 trillion euros in early 2012 and hovers near 2 trillion euros now.
Excess liquidity, or the amount of money banks have beyond what they need for their day-to-day operations stood at 85 billion euros on Tuesday and is expected to rise to around 140 billion euros once the operations are settled.
On Monday, Draghi said the September TLTRO take-up had been within the ECB's expected range and that the September and December operations should be assessed together.
"The option to wait (for December) was simply too attractive for banks," Reinhard Cluse, economist at UBS, adding that banks wanted to wait for the results of the ECB's health checks and rely on the cheaper regular tenders in the meantime.
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