The Latest Effort To Save The Eurozone Just Fell Flat On Its Face

Mario draghi ecbREUTERS/Francois LenoirECB President Mario Draghi is unlikely to be happy.

The latest funding scheme designed to offer a boost to the eurozone’s banks is looking like a flop, after the release of initial figures on the take-up from the banks it’s intended for.

The European Central Bank calls its latest wheeze “targeted long-term refinancing operations,” or TLTROs. Banks can access cheap credit from Frankfurt and are allowed to take up to 7% of their total loans in the eurozone. There’s a longer explanation from Danske Bank here.

Figures out Thursday morning show that the bloc’s banks snagged €82.6 billion ($106.5 billion) in the long-term loans, less than basically anyone was expecting. Analysts are united, for once, in the view that the take-up of the scheme is a massive disappointment.

Kit Juckes, of Societe Generale, said in a research note Thursday morning that even a take-up of €100bn to €120bn would be “a small enough figure to leave many fearing that the ECB is still doing too little, too late.”

Emily Nicol of Daiwa Capital Markets had similar sentiments, saying that any less than €100bn to €150bn “would cast some doubt on whether the TLTRO programme constitutes a fitting solution to the euro area’s economic challenges.”

BNP Paribas economists twisted the knife, saying that ECB actions so far would be insufficient to raise the ECB’s balance sheet. The size of a central bank’s balance sheet is often used as a measure of how much monetary policymakers have eased policy for the economy. The ECB’s has been shrinking for some time. If its policies had been successful, the balance sheet would have grown — indicating it was successfully making new loans to banks that want them.

Screen Shot 2014 09 18 at 10.36.05 AMHaver Analytics/Oxford EconomicsThe European Central Bank’s balance sheet is shrinking.

There will be another round of funding in December, but Jennifer McKeown of Capital Economics offered more pessimism in a note: “We can’t see why banks would borrow a lot more money then … We maintain our view that a broader programme of asset purchases, or quantitative easing, will be needed to get the economy going and avert the risk of deflation.”

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