European Central Bank: Term Refinancing Operations

Abstract

During the Global Financial Crisis (GFC), the European Central Bank (ECB) expanded the frequency, maturities, size, and set of eligible collateral for several of its standing term refinancing operations (TROs). Changes started in August 2007, when the European interbank market tightened, and the ECB supplemented its monthly longer-term refinancing operations (LTROs) with another three-month-maturity tender each month. Another encounter with market turbulence in March 2008 brought six-month LTROs. The largest expansion came after the collapse of Lehman Brothers in September 2008: the ECB enlarged its set of eligible collateral, added 12-month LTROs, and added special-term refinancing operations (STROs) that matured at the end of the reserve maintenance period. In a first, the ECB also said it would satisfy all demands for liquidity in a TRO at a fixed rate, abandoning the auctions that it had long used to determine the interest rates it charged. This demand- driven, “full-allotment” policy combined with the longer maturities to ease interbank rates from their panicked highs. At its peak in summer 2009, more than EUR 729 billion was outstanding. The ECB recouped all loans on this program.

Keywords: enhanced credit support, European Central Bank, fixed-rate, full-allotment, Global Financial Crisis, LTROs, SLTROs, STROs

JEL Classification: G01, G28