EBA欧洲银行-EBA-Op-2014-07-Central-banks-funding-support-measures_33页_1mb

Summary of the Report on the Use and Benefits from ESCB Central Banks' Funding Support Measures

Core Content

This report evaluates the use and benefits of long-term funding support measures introduced by ESCB central banks during the financial crisis. It focuses on four specific measures: the ECB's 3-year Long Term Refinancing Operations (LTROs), Danmarks Nationalbank's 3-year loan facilities, the Hungarian Central Bank's 2-year variable rate collateralized loans, and the first phase of the UK's Funding for Lending Scheme (FLS). The report is based on data provided by the relevant central banks and aims to support the European Commission in preparing a broader policy report.

Main Funding Support Measures

ECB's 3-Year LTROs

• Timeframe: Introduced in December 2011 and February 2012.
• Purpose: To provide liquidity to the euro-area banking system and prevent a destructive deleveraging process.
• Amounts:
  • First LTRO: EUR490bn to 523 participants in December 2011.
  • Second LTRO: EUR530bn to 800 banks in February 2012.
• Funding Cost: Fixed at the average rate of the main refinancing operations (1% p.a.).
• Collateral Expansion: Allowed national central banks to accept additional performing credit claims and certain ABSs with A- or above ratings.
• Repayment Option: Counterparties could repay any part of the loan after one year.

Danmarks Nationalbank's 3-Year Loan Facilities

• Timeframe: Introduced in March 2012.
• Purpose: To provide medium-term liquidity and reduce long-term funding costs for Danish banks.
• Amounts: The 3-year loans made up almost the entire volume of outstanding monetary-policy loans.
• Funding Cost: Fixed interest rate equal to the 7-day monetary policy lending rate (0.70% in March 2012, 0.20% in September 2012) plus an interest premium (initially zero).
• Repayment Option: Counterparties could redeem the loans weekly starting six months after the drawdown.

Hungarian Central Bank's 2-Year Variable Rate Collateralized Loans

• Timeframe: Introduced in April 2012.
• Purpose: To support liquidity and prevent a decline in corporate lending.
• Funding Cost: Variable rate based on the central bank base rate during the loan's maturity.
• Penalty Fee: Imposed if the average monthly outstanding amount of adjusted domestic non-financial corporate loans decreases below the level on 30 June 2012.
• Penalty Structure: 50 bps for a 1% decrease, up to a maximum of 250 bps.
• Repayment Option: Loans could be prepaid after one year.

UK's Funding for Lending Scheme (FLS)

• Timeframe: Launched in July 2012, first phase ended in January 2014.
• Purpose: To encourage lending to UK households and businesses by providing funding at below-market rates.
• Funding Cost:
  • 25 bps per year for banks that expanded their net lending.
  • Additional 25 bps per percentage point fall in lending for banks that contracted their loan stock, up to a maximum of 150 bps.
• Collateral: Banks could exchange eligible collateral (e.g., mortgages, corporate loans) for Treasury bills.
• Term: Four years from the date of drawdown, with early repayments allowed.

Usage of Funding Support Measures

• Primary Use: Banks used these measures mainly to replace market funding, which had become more expensive and less available.
• Liquidity Stabilization: The measures helped stabilize banks' liquidity positions and restore confidence.
• Impact on Funding Costs: Cheaper funding improved marketable funding possibilities and reduced overall funding costs for banks.
• Asset Sales Prevention: Prevented fire sales of assets that would have led to large losses and market deterioration.
• Lending Incentives: While the measures were intended to encourage lending, quantifying the extent of this effect was difficult due to data limitations.
• Profit Recovery: Some banks used the cheap funding to recover profitability, particularly by investing in sovereign bonds or buying back their own debt.

Benefits from Funding Support Measures

• Liquidity Improvement: Most frequently cited benefit was the improvement of liquidity and funding regulatory ratios.
• Cost Reduction: Lower funding costs led to a decrease in yields on new issued bonds and deposit rates.
• Market Stability: Supported the stability of the financial market and prevented excessive deleveraging.
• Sovereign Bond Investment: Banks in vulnerable Euro Area countries often used the funds to purchase domestic sovereign bonds, which had higher yields than the cost of funding.
• Qualitative Assessment: Due to data constraints, a qualitative assessment was conducted, which highlighted the positive impact on bank stability and lending capacity.

Key Challenges and Limitations

• Data Availability: Country-specific data was not available for ECB LTROs due to the single-currency area nature, making generalization difficult.
• Quantification of Benefits: The benefits of the measures, especially their impact on lending, were hard to quantify due to lack of a counterfactual.
• Qualitative Focus: The report relied on qualitative assessments and questionnaires from central banks and supervisors.

Conclusion

The long-term funding support measures introduced by ESCB central banks played a crucial role in stabilizing the euro-area banking system during the financial crisis. They provided liquidity at below-market rates, improved regulatory ratios, and supported the real economy through lending. While the benefits were largely qualitative and the impact on lending was not fully quantifiable, the measures were essential in maintaining financial stability and preventing further economic deterioration.