Not an overwhelming trimming of liquidity but ushering in a new phase
In aggregate terms, the repayment falling due now amounts to EUR478bn (out of the EUR1308bn initially taken up in June 2020, c.EUR830bn has already been repaid). As of now, the TLTRO III.4 operation represents c.43% of the total TLTRO III operations now outstanding and c.EUR622bn will be left once it is repaid (excluding the potential early repayments of the .5 to .10 operations in the June window).
We don’t expect any relevant volume of early repayment of the pending TLTRO III operations still in force (operations .5 to .10). As a first approach, this may not exceed EUR100bn (out of a total outstanding of EUR622bn).
Regarding geographical distribution, we estimate that the initial take-up in June 2020 was relatively well distributed across geographies. In absolute terms, Italy and France will be facing the highest volumes of repayment falling due in the June TLRO III.4 operation in aggregate terms.
Seemingly not any big shock in aggregate terms
A first look at aggregate figures does not suggest any major threat of game changer in total outstanding excess liquidity: once the TLTRO III.4 is repaid, excess liquidity will still stand around EUR3.5trn. In any case, this step down in excess liquidity of c.EUR480bn should definitely usher in a new phase of a more straightforward/steady trimming of excess liquidity by the ECB.
What about the distribution of the remaining liquidity?
According to our estimates, non-TLTRO III-related excess liquidity is concentrated in core jurisdictions. which may mean that as the TLTRO III redemptions progress (70% of the remaining operations will redeem in the next nine months), certain other jurisdictions (peripherals as one good candidate) will have to learn to live without this provision of “easy” liquidity.
This asymmetric distribution of non-TLTRO II excess liquidity (arguably bound to m become more remarkable in 2H23 and thereafter) may be of particular relevance: i) reflected in the pricing of liquidity/counterparty risk in money market operations; ii) it may exert a differential impact on bank lending conditions to the real economy.
Fresh ECB liquidity provision measures? Not really back to non-standard measures but rather “fresh” standard ones
Some comments have been raised about the ECB eventually setting up a new mechanism to meet the temporary liquidity needs of the banking system. As a first approach we do not believe this eventual repo-facility featuring new mechanism should necessarily be interpreted as a new version of the extraordinary “non-standard” measures.