SocGen explains why the €490 billion LTRO number is misleading and why, net of rolls, the actual new liquidity is about 60% lower. In other news, don't forget to add €210 billion in net "assets" to the ECB's already record balance sheet of €2.494 trillion, bringing it to a fresh new record of €2.7 trillion, or $3.5 trillion. At what point will the market start asking questions of the world's most insolvent Frankfurt-based hedge fund (which has repeatedly said it refuses to print cash to cover capital shortfalls) we wonder.
From SocGen's Klaus Baader
Banks pile into ECB’s new super-long-term liquidity facility
The first-ever 3-year liquidity operation by the ECB was an unqualified success. Banks bid for a greater-than-expected €489.2bn, making this the largest-ever single refinancing operation in the ECB’s history.
However, this is not the net amount by which outstanding ECB open market operations have increased. Because banks reduced their use of the Main Refinancing Operation (MRO) by €123bn yesterday, and also the use of 3-month long-term refinancing operations (LTROs) by €111bn allotted today, the net increase is smaller.
Moreover, several banks made use of the possibility to swap out of the recent 12m LTRO that was allotted in October into the new 32-month facility (123 out of 181), to the tune of €46bn.
So the net increase in outstanding open market operations is about €210bn, which is a considerable amount compared with the €514bn in total MOs that were outstanding at the beginning of the week. But arguably more important than the raw amount by which liquidity has increased is that the maturity of those funds has lengthened drastically, which will give banks more planning certainty and will hopefully support lending to households and enterprises as well as creating additional demand for bonds issued by the hard-pressed southern European member states.
Another sign of the success of the auction was the large number of banks that participated. 523 banks entered bids, which compares with 130-200 at the weekly MROs, and 181 at the most recent 12-month LTRO. So, clearly there is no sign of stigma here. Another 32-month LTRO is planned for 29 February.