The ECB’s second three-year longer-term refinancing operation (LTRO) is similar in gross terms to the first but will have a significantly larger impact on net lending to the banking system and bank reserves, suggesting further liquidity support for markets.

The €529.5 billion lent in today’s three-year LTRO compares with €489.2 billion in the first such operation conducted on 21 December. Banks, however, repaid €275.1 billion of other “monetary policy” loans in the week of the December operation, resulting in a net increase of €214.1 billion.

This week, banks have repaid €218.9 billion of shorter-term loans, implying a net rise in monetary policy lending of €310.6 billion. Some banks previously borrowing under “emergency liquidity assistance” programmes, however, probably took advantage of looser collateral rules to switch into the cheaper three-year LTRO. The net increase in lending, therefore, should be less than €310.6 billion but still significantly higher than in December.

The rise of €214.1 billion in monetary policy lending in the week of the December operation was reflected in a €164.6 billion increase in banks’ current account and deposit facility balances at the ECB. Assuming the same percentage pass-through this week, these reserves may grow by about €240 billion from their level of €571 billion at the end of last week, a 42% gain. Such a rise would push G7 bank reserves well above their December record – see chart.