Bankers call for third LTRO
* Talk of EUR100bn stimulus to assist weak peripherals
* Adjustments suggested to link LTRO to real economy
By Aimee Donnellan
BARCELONA, Sept 12 (IFR) - European bankers called on Thursday for a third LTRO to be introduced in 2014, as peripheral banks continue to face expensive funding costs and the prospect of Fed tapering is likely to put upward pressure on yields.
Speaking at the ECBC conference in Barcelona on Thursday, a treasurer at a peripheral bank that had accessed the market in the past year said: "At the moment we have the choice of paying hundreds of basis points of spread for a short-dated bond or paying 0.5% to the ECB. It's not a difficult choice."
Allied Irish Banks and Banco Popular Espanol highlighted the difficulties peripheral banks face accessing the public market last week, only attracting modest orders from investors despite offering secured bonds.
And treasurers at the conference in Barcelona say that the lack of support for those deals, which both offered coupons above 3%, is limiting their funding options.
The ECB proved to be an essential lifeline to many European institutions during the financial crisis. It ploughed over EUR1trn into banks with three-year funding operations in late 2011 and early 2012, lifting excess liquidity to more than EUR800bn.
And while the ECB continues to support banks through regular loan provisions, bankers say more is needed. "It seems obvious that the ECB should provide another EUR100bn to Europe's banks," said a syndicate banker.
Data released by the Bank of Portugal showed that Portuguese banks' reliance on the ECB for funding in August had ticked up by 2.8% to EUR51.57bn.
Speaking at the conference, Sylvain Broyer, head of economics and deputy chief economist at Natixis, explained that as a result of Fed tapering, central bank liquidity will need to shift from the US to Japan and elsewhere to ensure a healthy and liquid market is upheld.
"There's no easy way out," he said. "We could see a third LTRO emerge next year and will hopefully see a very gradual normalisation of monetary policies and a rebalancing of growth in favour of advanced economies."
REAL ECONOMY IMPACT
The key to the success of yet another LTRO will be its impact on the real economy.
Unemployment in the eurozone in July remained at a record high of 12.1%, although there is a huge variation in jobless rates between countries such as Germany, where the job market is robust, and Greece or Spain, where more than one in four workers have no job.
A number of bankers speaking on the sidelines of the conference suggested that the ECB could increase growth in the eurozone by following the Bank of England's example and tying cheap funding to lending targets, as is being done through the Funding For Lending Scheme (FLS).
"Another LTRO will certainly boost confidence in Europe and I think it makes sense to add a bit more support until weaker banks are able to stand on their own two feet," said a DCM banker.
From the ECB's side, it looks like it is willing and able to explore the possibility of another long-term loan provision.
Speaking on Wednesday, ECB Governing Council member Ardo Hansson said offering more long-term loans would be a tool for the bank to steer down market rates and help boost the eurozone economy.
"It (LTRO) has been discussed as an option on the table," Hansson said. "But so far the package we have right now, I think, seems appropriate." (Reporting by Aimee Donnellan, editing by Helene Durand and Julian Baker)
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