ECB’s €500b payoff puts Italian banks in firing line

BLOOMBERG 

The European Central Bank (ECB) is about to test the resilience of the continent’s banking industry by making lenders repay about half a trillion euros in cheap pandemic-era loans — in one go.
While the €4 trillion or so of excess liquidity sloshing around the financial system should limit the overall impact of the giant repayment, individual firms and countries could be strained, economists and analysts say. Smaller Italian lenders are the biggest concern, with Greek banks not far behind.
Italy’s outstanding borrowing under the ECB’s TLTRO program is more than the excess cash its lenders have parked at the ECB, meaning some of its banks will have to raise money elsewhere to repay the loans. Greek lenders’ excess reserves are more or less equal to what they owe the ECB.
As €476.8 billion of TLTRO loans come due on June 28, specific firms in Germany, France or other euro-zone nations could also feel the pinch, according to Reinhard Cluse, an economist at UBS Group AG.
“In Italy or Greece, the aggregates are clear,” he says. “But even in other countries, there could be banks that borrowed in excess of their reserves at the ECB.”