Draghi did it, this time going well beyond market expectations. Finally, there is a commitment to maintain rates at current levels or even lower beyond the horizon for the purchase of securities (March 2017). But is it really time to celebrate? There has been much discussion about negative consequences of sub-zero rates on banks' balance sheets.
“Yes, it's true, rates have fallen again and no diversification mechanism on the quantities deposited with the ECB has been introduced – analyzes Lea Zicchino, Prometeia partner in charge of Market Analysis and Financial Intermediaries -. But this was done, to use Draghi's words, to signal that rates cannot fall indefinitely: the Central Bank knows perfectly well that at a certain point negative rates become harmful for some banks. And this is good news for those who fear negative short-term rates”.
“What it will surely bring relief and will facilitate the transmission of monetary policy to the real economy – continues Zicchino – is the fact that the ECB is willing to pay the banks if they borrow money to turn over to the economic system". The rate of the new TLTROsIn fact, could drop below zero (up to -0,4%, taking into consideration the new parameter) if the institutions ask for funds beyond a certain threshold.
For Italian banks this means up to 317 billion euros more in long-term financing (30% of the stock of loans eligible as at 31 January 2016), which will further reduce the need to issue bonds to replace those maturing in the coming months, thus protecting themselves from market volatility. This effect should be able to counter the negative impact of lower rates on the income statement.
