Banks to be incentivised to lend to businesses?

02/12/2013

German newspaper 'Sueddeutsche Zeitung' has reported that ECB President Mario Draghi and other Council members are considering the option of conducting more liquidity operations (known as LTROs) to help the fragile euro zone economy and to ensure a better flow of credit to the private sector.

The ECB has already extended more than €1trillion of cheap three-year loans to banks through two long-term refinancing operations in late 2011 and early 2012. Another similar, large-scale operation is now looming...

However, under the new proposal, one option under consideration is that banks will have access to funding via the LTRO only if they agree to pass the borrowed money on in loans to industrial, retail and services businesses.

The new LTRO may also run for only nine or twelve months. Reports of the proposals began to emerge after ECB policymakers said last week that they were open to taking fresh measures to support the euro zone economy.