What could the ecbs structural ltros look like

Marketing communication 21 August 2026

What could the ECB's structural LTROs look like? ECB special

Contents RaboResearch The missing part of the toolkit 1 Some design considerations 3 Global Economics & Standard operations 1 12-month maturity 3 Markets A gap in the toolkit? 2 Variable-rate tenders 4 knowledge.rabobank.com Minimum reserves increase to fast-track LTRO No uniform pricing 4 discussions? 2 Could variable-rate LTROs compress term rates? 6

Bas van Geffen, CFA Senior Macro Strategist

Summary Daniela Grau Intern  We argue that structural LTROs could be launched when MRO demand reaches €100-125bn.  These LTROs will likely have 12-month maturity and may be allotted via auction-style tenders.  This would skew allocation to banks with higher market-based funding costs, at rates comparable to the market.  That skew may compress term rates a bit, but it will not offset the effect of liquidity draining.

The ECB could start discussions about the design of structural LTROs towards the end of this year, but the launch date depends on banks’ demand for reserves. We believe 12 months is a plausible maturity for these operations. Moreover, the ECB may issue the LTROs by auction, instead of the fixed-rate, full-allotment procedure. The availability of 12-month LTROs could compress term funding rates a bit, but it will not fully offset the effect of declining liquidity.

The missing part of the toolkit As the ECB shrinks its balance sheet, demand for central bank reserves will eventually pick up. Meeting all demand for liquidity with standard refinancing operations may be suboptimal. Once reserve demand reaches a threshold, longer-term refinancing operations can fill a gap in the ECB’s toolkit.

Standard operations The ECB’s toolkit includes two standard liquidity providing instruments. The weekly main refinancing operation (MRO), and a 3-month longer-term refinancing operation that is allotted once every month.1

The ECB intends for these standard operations to become the main liquidity providing instruments again. That’s a requirement for the shift to a framework of demand-driven liquidity provision: these short-term credit operations ensure that the supply of central bank reserves matches demand efficiently.

This does not necessarily mean that these instruments provide the largest amount of liquidity to the system. The ECB only needs to provide enough reserves through the standard operations to ensure that the marginal euro of liquidity is always provided through the MRO – even if banks’ demand for reserves experiences a sudden drop.

1 In the remainder of this note, we will use longer-term refinancing operations to mean the forthcoming longer- dated operations, i.e., excluding the existing 3-month LTRO.

1/10 RaboResearch | What could the ECB's structural LTROs look like? | 21-08-2026, 16:41 Please note the disclaimer at the end of this document.

A gap in the toolkit? Technically, all liquidity needs could be met through these standard operations. However, that much reliance on short-term credit operations may lead to a suboptimal outcome.

Banks would have to roll over significant amounts of borrowing. That’s normally not a problem, given the ECB’s demand-driven framework. However, the larger the weekly refinancing needs, the greater the risk that someone, somewhere makes an error. That still leaves short-term borrowing in money markets or the ECB’s marginal lending facility as a fallback. But the former requires some bank to have borrowed more reserves than it needs (prefers) to hold, and recourse to the latter would certainly cause some concern in markets.

Add to that the limited regulatory value of these reserves. Banks’ excess reserves do count towards their liquidity coverage ratios, but MROs and 3-month LTRO borrowing does not count towards the net stable funding ratio. Having said that, the liquidity that was injected through the ECB’s asset purchases does not necessarily count either: this depends on the instrument the sellers of bonds use to deposit the proceeds with a bank. So, this will not be the primary consideration.

Minimum reserves increase to fast-track LTRO discussions? If the ECB proceeds with its reported plans to raise…