European banks: TLTRO III

The view depends on where you are looking from

A bank with significant TLTRO II funding and low excess deposits will probably see the terms for the new programme as reasonably attractive. For a bank with plenty of surplus deposits and decent access to public markets, TLTRO III adds little. The structure of TLTRO III is less attractive for banks than its predecessor given its shorter maturity, the inability to repay early and the slightly higher relative cost. We think there will be limited take-up in northern Europe, especially as covered bonds are cheaper for many core banks, and that total take up from the periphery will also be lower than existing drawings. Italian banks will likely be the biggest users. This fits with Draghi’s description of the new programme as a “backstop”.