- European banks are lending, but may be not strongly in Europe.
- They may not need a special facility to give them money to lend.
- There is some risk of disappointment either at the ECB meeting next week or with the participation in the TLTRO facility to be launched next month.
The ECB reports money supply and new lending figures tomorrow. The central bank has acknowledged that there are preliminary signs that credit extension to households and businesses have begun improving. The ECB is not satisfied, and next month, the Targeted Long Term Repo facility will be initiated. The ostensible goal is to increase lending to help growth (and reduce unemployment).
This Great Graphic that Enda Curran of the Wall Street Journal tweeted shows that European banks are lending at their strongest pace since 2008, but not to European counterparts, to Asia. The idea that European banks are not lending, and need some new preferential facility seems to be contradicted by this graph.
Some surveys suggest economists may be lowering their estimate of the take down (participation) in the TLTROs. Some national central banks may be using moral suasion to ensure participation. While some of the rules and reporting requirements of participation in the TLTRO may be less onerous than first perceived, it is not clear that banks from the creditor countries, like Germany, will be significant participants.
Some of the strong buying of euro area bonds appears to have been sparked by Draghi's comments at Jackson Hole, while some observers think it is a tell of new action, as in QE, as early as next week. Some buying those may be related to the TLTRO facility, and anticipating that some of the borrowed funds are used to buy sovereign bonds, even though the purpose is to promote lending to the private sector. There is some risk then that the ECB disappoints next week, or that the participation in the TLTRO is less than anticipated.