Widely believed to have averted a full-scale banking crisis in Europe, the European Central Bank’s three-year long term refinancing operation has given a boost to markets jittery over the prospect of a European meltdown.
But let’s put this in perspective. While European banks’ purchases of sovereign debt as a result of the LTRO may have funded some countries through the end of the year, the banks themselves have a long way to go before they’ll be secure about their own funding next year.
In fact, according to this chart (via @ZeroHedge) banks would need a full four more LTROs before they would be sure to meet funding requirements by the end of next year. The €489 billion ($657 billion) they scooped up in the last LTRO is still paltry in comparison to banks’ €2.4 trillion in funding needs by the end of next year.
Obviously, banks will try to raise funding through other outlets. At minimum, however, this chart highlights that it’s still difficult to be secure that a credit crunch wouldn’t take down Europe’s banking system.
Tomorrow’s LTRO is expected to produce the same take-up as December’s. We could very well see a renewed pressures on the banking system if this allotment falls short.