Mario Draghi at the head of European Central Bank: an analysis of his mandate based upon the main topics of monetary policy

This kind of operations have the prime goal of entering liquidity to sustain the banking market. Therefore, augmenting Bank Lending and avoiding Credit Crunch by making the Credit conditions easier than they usually are, and hence the term “Easing”.

Some of the Credit Easing operations implemented since the beginning of the Euro Area crisis are:
- Covered Bond Purchase Programme
- Long-Term Refinancing Operations (From December 2011 to October 2012)
- Targeted Long-term Refinancing Operations (June 2014)
- Covered Bond Purchase Programme 3 (October 2014)
- Asset Backed Securities Purchase Programme (November 2014)
- Expanded Asset (Private Sector) Purchase Programme or Quantitative Easing (June 2016)

At the very beginning of the Euro Area crisis, there was a big need, this was allowing Banks to get long-term financing, way over the 3-mothns maximum term previously set and consequently already taken to 12 months.

Therefore, the Long-Term Refinancing Operations enabled banks to get 36-months long financing with favourable rates.
The two LTRO operations had great success with a total amount of more than 1000 banks participating it, moving an amount of almost more than 1000 Billions of Euros. With the liquidity entered on the Market the European Central Bank was trying to encourage banks to buy large parts of sovereign debts over than re-starting their usual credit function towards households and firms.

Nevertheless, only a small part of those loans was effectively used for the ECB’s targeted purposes. Indeed, large parts of these loans were exploited by the banks for re-acquiring their own bonds and restructure their equities. As a result, the liquidity lent to the banks could not enter the markets and reach firms and households, ultimately impeding the continuation and progression of the economic recovery.

For this very reason the European Central Bank invented a very cunning way to prevent these kinds of behaviors the banks used to have.

They created a new non-conventional monetary policy, the “TLTRO”, which stands for Targeted Long-Term Refinancing Operations.
The difference between the LTRO and the TLTRO, lies into the target the latter have.
Indeed, the TLTROS are loans which are granted to banks under particular conditions.
If a bank participates into those operations, it has to promise the funds are going to be used for lending households and families.

These kinds of operations wanted to sustain the economy in a more direct way, by granting the banks with favorable conditions, and also by punishing the ones that do not respect their pledge of financing the Real Economy with the duty of refunding the loan received at higher taxes than the ones originally conceded.