Report from the Commission to the European Parliament and the Council on the use and benefits of longer-term refinancing operations and similar funding support measures provided by ESCB central banks to credit institutions

In accordance with Article 161(9) of Directive 2013/36/EU ("CRD") and after consulting the ECB, the European Commission has prepared this report to the European Parliament and Council on the use and benefits of longer-term refinancing operations and similar funding support measures provided by ESCB central banks to credit institutions. This report takes into account the report which the European Banking Authority (EBA) submitted to the European Commission on 17 July 2014. In line with the mandate in the CRD this report assesses the use banks have made of past central bank funding support measures between 2011 and 2013 but does not assess the appropriateness of monetary policy operations.

The European Parliament and Council requested the Commission to report on the use and benefits of refinancing and funding support measures provided by several ESCB central banks to credit institutions between end 2011 and end 2013. Whereas the central bank funding operations were expected to have a positive impact on the real economy as a whole through increased lending to corporates and households, it was also argued that credit institutions could have benefited from this funding support to engage in other profitable transactions not related to household and corporate lending. In their mandate the co-legislators also invited the Commission to submit legislative proposals, if appropriate. These proposals would be aimed at limiting the possible opportunistic use of central banks' funding support measures by credit institutions.

The longer-term refinancing operations and similar central bank funding support measures assessed by the Commission in this report are refinancing operations with low rates of interest and exceptionally long maturities entailing generally the acceptance of a wider range of eligible collateral. The context of these measures was severe stress on bank funding markets in Europe at that time. Several banks, particularly in more vulnerable countries, were experiencing serious liquidity problems, as a combination of significantly impaired access to the wholesale funding market and outflows from retail deposits. This translated into high funding costs, high loan-to-deposit ratios and elevated liquidity risk.

Against this background, the aim of these operations was to provide long-term funding to euro area banks. It seems very likely that without longer term funding support banks in more vulnerable countries would have been forced to de-leverage at a higher pace. The long-term funding support measures were defined by EBA and the Commission as funding provided to banks directly via ESCB central banks with an initial or planned maturity of more than 1 year.