The European central bank has announced the total amount of money which was taken up by the banks in its second large push to shove its Long-Term Refinancing Offer (LTRO) down the throats of the banks. After the failure of September of this year where only a handful (255) banks took just 82.6B EUR, all eyes of the financial world were aimed at the December offering of the LTRO. As ECB President Mario Draghi repeatedly said he was aiming to pump 400 Billion Euro in the market through these LTRO's, the expectations were high as one would have expected at least 250 Billion Euro to have been taken up by the banks. This number of 400B EUR wasn't just pulled out of thin air, as it was based on 7% of the outstanding loans made by the banks to private borrowers.

The actual number was much lower at just 130B EUR spread over 306 banks for a total take-up of 212B EUR which is just more than half of what the ECB was hoping for. Needless to say this outcome was quite humiliating for the ECB and especially for president Draghi who said he was sure the take-up in December would be much higher than in September. Okay, yes, he was right, the banks drew down more cash from the ECB, but the total number is still 185B EUR less than what he was eyeing, so we can't really say it was a huge success.

It gets even worse. If one would simply read the headlines, he would think that the ECB successfully 212B EUR into the financial system which is better than nothing. This statement would be true but we can't ignore the repayments of the money which was previously lent to the banks in previous long-term refinancing operations. So what does this mean? Well, banks are using the ‘new' funds to repay the ‘old' loans so the entire system stays in an almost exact status quo. Nothing is changing and no NET new liquidity is being pumped into the markets. In the exact same week the ECB distributed 130B EUR, roughly 40B EUR in old loans were repaid, and we are expecting more repayments to occur shortly.