ECB Draghi: LTRO “Unquestionable Success” But Effects Complex
FRANKFURT (MNI) – European Central Bank President Mario Draghi on
Thursday said the bank’s cheap three-year loans to banks are an
“unquestionable success” that have improved the risk environment
“The LTRO, both operations, I would say, are an unquestionable
success,” Draghi told journalists at his monthly press conference. “The
risk environment has improved enormously. Markets have reopened, both
the senior unsecured and the covered bond market, and even the interbank
market,” he said.
“Great progress has been achieved,” Draghi added, comparing the
situation today to that of November 2011.
“We certainly see many signs of a return of confidence in the
euro,” the ECB chief said. “Real money investors have to some extend
come back.” He noted that money market funds that were the first to flee
the euro have started to return.
An internal ad hoc bank lending survey produced by the ECB shows a
“modest pick-up in credit and bank lending since the first LTRO” in
December, Draghi revealed. He said the survey was for internal use and
would not be published.
At the same time, Draghi noted the recent “negative trends in
money.” He noted that, “for the first time in history, M3 has declined
in absolute levels for three consecutive months.”
The LTRO has had a “powerful effect” on “tail risk” and has bought
time for governments and banks, and the ball is now in their court,
Draghi said, adding that there was no room for them to be complacent.
“It is essential for banks to strengthen their resilience further
including by retaining earnings,” the ECB President said in his
“There is an urgent need for governments to make progress in fiscal
consolidation and structural reforms,” he added.
While extolling the success of the LTROs, Draghi also noted that
their effects were “complicated.”
“We need to see how the economic and financial landscape has
changed following these two operations. There are many complexities that
have to be thoroughly analysed,” he said.
Responding to criticism that the ECB’s cheap loans to the banking
sector risk making banks overly dependent on the central bank, Draghi
said “let’s not forget there was no interbank market before, they were
“We see market that are gradually re-liquifying themselves so we
will watch carefully. These are operations that have been successful but
are very complex in their effects,” he said.
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