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FAQs on TLTRO III operations

Last updated on 27 October 2022

Collateral

Q1. What kind of collateral has to be posted for TLTRO III operations? Do the standard conditions governing other Eurosystem open market operations apply? And are there any differences now that the interest rate is negative?

TLTRO III operations are treated as normal liquidity providing reverse transactions, so the usual eligibility requirements for collateral apply.

The amount of collateral pledged must, at all times, cover the entire amount of Eurosystem refinancing provided – both principal and accrued interest. That underlying principle is independent of the sign on the interest rate. Where interest is accrued at a negative rate, that amount should be subtracted from the total amount of outstanding refinancing on a daily basis, just as accrued interest is added in the case of a positive interest rate.

Q2. Is it possible to use cash as collateral?

Cash is not an eligible asset class as defined in the relevant legal documents referred to in Q1. Therefore, on the settlement date of a refinancing operation, the counterparty is obliged to have mobilised a sufficient amount of eligible assets as collateral, excluding cash, to cover the TLTRO funds. However, in the case of margin calls, it is possible to transfer either eligible assets or cash.

Participation in TLTRO groups

Q3. What is the deadline for declaring a TLTRO III group?

The deadlines for declaring a TLTRO III group (or a change to a group’s composition) can be found in the indicative calendar. Each TLTRO III operation has its own separate deadline, with groups required to submit a declaration before participating in a TLTRO III operation for the first time.

Q4. Can a credit institution that already participated individually in one of the TLTRO III operations form a new group for any following TLTRO III operation? Can it join an existing group?

A credit institution that already participated individually in one of the TLTRO III operations may form a new group or join an existing one if the Governing Council sees objective reasons to allow such changes, i.e. a dedicated decision by the Governing Council would be required based on Article 3.5a.

It may also form a new group under the conditions spelled out in Article 3.6a.

Borrowing allowances, bid limits and benchmarks

Q5. Which loans are eligible for TLTROs III?

The definition of eligible loans did not change in comparison with the first and second TLTRO series. Eligible loans are loans to non-financial corporations and households resident in Member States whose currency is the euro, except loans to households for house purchases.

However in the third series, loans to the non-financial private sector that have been self-securitised (i.e. where the asset-backed securities resulting from the securitisation are fully retained) may, subject to certain conditions, also be included in the reference outstanding amount that is used for the purpose of calculating the participant’s borrowing allowance.

Q6. What is the difference between outstanding amounts of eligible loans as at 28 February 2019 and 31 March 2019?

Outstanding amounts of eligible loans as at 28 February 2019 are used for the calculation of the reference outstanding amount, from which the borrowing allowance is derived. The borrowing allowance determines the amount that a participant can borrow under TLTRO III.

Outstanding amounts of eligible loans as at 31 March 2019 are used for the calculation of benchmark net lending and the benchmark outstanding amount – i.e. to determine lending performance and the resulting interest rates.

Q7. How are the borrowing allowance, bid limit, benchmark net lending, and benchmark outstanding amounts calculated? How do changes in a group composition impact their calculation?

A participant’s borrowing allowance, bid limit, benchmark net lending and benchmark outstanding amount are calculated either on an individual basis or on a group basis.

As of March 2021, the borrowing allowance is equal to 55% of its total reference outstanding amount (i.e. the sum of outstanding amounts of eligible loans and, upon exercise of the option in Article 6(3), outstanding amounts of self-securitised eligible loans as of 28 February 2019).

Moreover, since the third TLTRO III operation, the bid limit of 10% of the total reference outstanding amount is removed. Thus, each participant’s bid limit for each TLTRO III is its borrowing allowance reduced by the amounts borrowed under previous TLTROs III and increased by the amounts repaid under the early repayment procedure set out in Article 5a or has notified the relevant NCB in a binding way that it intends to repay under the early repayment procedure set out in Article 5a.

For details of the calculation of the benchmark net lending and benchmark outstanding amount, please refer to Annex I of Decision ECB/2019/21.

Q8. Is the TLTRO III benchmark net lending calculated taking into account the eligible net lending of the participant within the 12 months to 31 March 2019 or based on the difference between the outstanding amounts of eligible loans on 31 March 2018 and 31 March 2019?

The benchmark is calculated taking into account the eligible net lending during the period from 1 April 2018 to 31 March 2019; please refer to Decision ECB/2019/21, as amended, for further details. Please note that the difference between the outstanding amounts of eligible loans on 31 March 2018 and 31 March 2019 may differ from the eligible net lending during the period 1 April 2018 to 31 March 2019 in the event of adjustments to the outstanding amounts (e.g. securitisations or other loan transfers during the period, statistical reclassifications, etc.).

Interest and lending criteria

Q9. What kind of day-count convention is used to calculate the interest rate?

As with other liquidity-providing operations, an actual/360 day count convention is used for the calculation of interest rates.

Q10. Which are the lending criteria to be applied to the first seven TLTRO III operations?

Three lending criteria are applied to the first seven TLTRO III operations:

  1. Second reference period: looking at whether eligible net lending from 1 April 2019 to 31 March 2021 relative to the benchmark outstanding amount (i) exceeds the threshold of 1.15%, (ii) is between 0% and 1.15%, or (iii) is less than 0%.
  2. Special reference period (SRP): a threshold of 0% relative to the benchmark net lending applies over the period from 1 March 2020 to 31 March 2021. If a participant’s eligible net lending over that period does not exceed that threshold or the participant does not include this period in its reporting scheme, the initial lending criterion over the second reference period will be assessed instead.
  3. Additional special reference period (ASRP): A threshold of 0% relative to the benchmark net lending applies over the period from 1 October 2020 to 31 December 2021.

Q11. Which lending criteria are applied to the last three operations in 2021?

Only one lending criterion will apply to these operations: a threshold of 0% relative to the benchmark that applies from 1 October 2020 to 31 December 2021 (the additional special reference period).

Q12. How many relevant periods with different interest rate calculations are included in TLTRO III?

There are five periods for the calculation of interest rates:

  1. pre-special interest rate period (pre-SIRP): from the settlement date of the respective TLTRO III operation until 23 June 2020;
  2. special interest rate period (SIRP): from 24 June 2020 to 23 June 2021;
  3. additional special interest rate period (ASIRP): from 24 June 2021 to 23 June 2022;
  4. post-additional interest rate period (post-ASIRP): from 24 June 2022 until the earlier of 22 November 2022 or the early repayment date of the respective TLTRO III operation;
  5. last interest rate period (LIRP): from 23 November 2022 until the earlier of the maturity date or the early repayment date of the respective TLTRO III operation.

Q13. Which is the main interest rate period and why it is it needed?

The main interest rate period (MIRP) is the period from the settlement date of each TLTRO III operation until the earlier of 22 November 2022 or the applicable early repayment dateof the respective TLTRO III operation, i.e. it comprises the pre-SIRP, SIRP, ASIRP and post-ASIRP periods. It is considered in the calculation of the interest rate during the pre-SIRP and post-ASIRP interest rate periods.

Q14. How will the interest rate applied to the first seven TLTRO III operations be calculated?

Details of the calculation of interest rates are specified in Decision ECB/2019/21, as amended, as well as being set out in the ECB press releases published on 12 March, 30 April 10 December 2020, and 27 October 2022.

  • If the participant exceeded the lending threshold of 0% during the special reference period (1 March 2020 to 31 March 2021) and during the additional special reference period (1 October 2020 to 31 December 2021), the interest rate shall be:
    • during the pre-SIRP and post-ASIRP: the average DFR over the MIRP of the respective TLTRO III;
    • during the SIRP and the ASIRP: 50 basis points lower than the average DFR during the respective period, but not higher than -1%;
    • during the LIRP: the average DFR over the LIRP of the respective TLTRO III operation.

    The result of the assessment of the second reference period (1 April 2019 to 31 March 2020) is not considered in this case.

  • If the participant exceeded the lending threshold of 0% during the special reference period but did not exceeded the lending threshold of 0% during the additional special reference period, the interest rate shall be:
    • during the pre-SIRP and post-ASIRP: the average DFR over the MIRP of the respective TLTRO III;
    • during the SIRP: 50 basis points lower than the average DFR during the respective period, but not higher than -1%;
    • during the ASIRP: the lower of the average MRO rate during the ASIRP minus 50 basis points and the average DFR during the MIRP of the respective TLTRO III operation;
    • during the LIRP: the average DFR over the LIRP of the respective TLTRO III operation.
  • If the participant did not exceed the lending threshold of 0% during the special reference period but exceeded the lending threshold during the additional special reference period, the interest rate shall be calculated as follows::
    • during the pre-SIRP: if the participant has exceeded the lending performance threshold during the second reference period, the interest rate shall be the one derived by the assessment of the benchmark during the second reference period. If such participant has not exceeded the lending performance threshold during the second reference period, the interest rate shall be the average MRO rate during the MIRP of the respective TLTRO III;
    • during the SIRP: the interest rate shall be the lower between the average MRO rate minus 50 basis point during the special interest rate period and the one derived by the assessment of the benchmark during the second reference period;
    • during the ASIRP: the interest rate shall be 50 basis points lower than the average DFR during the respective period, but not higher than -1%;
    • during the post-ASIRP: the interest rate shall be the average DFR over the MIRP of the respective TLTRO III operation;
    • during the LIRP: the average DFR over the LIRP of the respective TLTRO III operation.
  • If the participant did not exceed the benchmark during the special and additional special reference periods but it exceeded the benchmark during the second reference period, the interest rate shall be:
    • during the pre-SIRP and post-ASIRP: the rate derived by the assessment of the benchmark during the second reference period as detailed in Annex 1 of Decision ECB/2019/21, as amended;
    • during the SIRP: the lower of the average MRO rate less 50 basis points during the special interest rate period and the rate derived by the assessment of the benchmark during the second reference period as detailed in Annex 1 of Decision ECB/2019/21, as amended;
    • during the ASIRP: the lower of the average MRO rate less 50 basis points during the additional special interest rate period and the rate derived by the assessment of the benchmark during the second reference period as detailed in Annex 1 of Decision ECB/2019/21, as amended;
    • during the LIRP: the rate derived by the assessment of the benchmark during the second reference period as detailed in Annex 1 of Decision ECB/2019/21, as amended.
  • If the participant did not exceed the benchmark during any of the assessment periods (second, special or additional special), the interest rate shall be:
    • during the pre-SIRP and post-ASIRP: the average MRO rate over the MIRP of the respective TLTRO III operation;
    • during the SIRP and ASIRP: 50 basis points lower than the average MRO rate during the respective period;
    • during the LIRP: the average MRO rate over the LIRP of the respective TLTRO III operation.

Q15. How will the interest rate applied to the last three TLTRO III operations be calculated?

The details of the actual interest rate are specified by the amending Decision ECB/2021/3 and Decision ECB/2022/37 along the lines of the press release of 10 December 2020 and 27 October 2022.

For participants exceeding the lending threshold of 0% during the additional special reference period, the interest rate shall be:

  • during the ASIRP: 50 basis points lower than the average DFR during the same period, but not higher than -1%;
  • during the post-ASIRP: the average DFR over the MIRP of the respective TLTRO III;
  • during the LIRP: the average DFR over the LIRP of the respective TLTRO III.

For participants not exceeding the lending threshold of 0% during the additional special reference period, the interest rate shall be:

  • during the ASIRP: 50 basis points lower than the average MRO rate during the same period;
  • during the post-ASIRP: the average MRO rate over the MIRP of the respective TLTRO III operation;
  • during the LIRP: the average MRO rate over the LIRP of the respective TLTRO III operation.

The second reference period and the special reference period will not be taken into account for these three operations.

Decision tree on interest rates

Further details regarding calculations are set out in Annex I of Decision ECB/2019/21, as amended.

Q16. Is there still a progressive interest rate incentive, or are TLTRO III interest rates now always binary (i.e. either less favourable or more favourable)? If there is a progressive interest rate incentive, what is the lower bound?

Yes, there are still instances where the interest rate decision is not binary. That will be the case where counterparties participating in the first seven operations do not hit the lending threshold of 0% from 1 March 2020 to 31 March 2021 (“the special reference period”). In that case, the initial modified lending criterion applies, which remains progressive. The lowest achievable interest rate in that instance is the average DFR over the different interest rate periods.

For the last three operations, the incentive adjustment for the TLTRO III interest rate is binary.

Q17. How and when will TLTRO III participants be repaid (especially in the case the interest rate is negative)?

Article 5 of Decision ECB/2019/21, as amended, states that information on interest rates related data will be communicated to participants in September 2021 and in June 2022, in accordance with the indicative calendar published on the ECB’s website, and the final interest rate for each operation will be communicated to participants before (but close to) the relevant maturity date.

Interest will be settled in arrears on the maturity of each TLTRO III operation or on early repayment. If the repayment occurs before interest rate data are communicated the counterparty is assumed not to have met the relevant lending assessment criterion.

If the applicable interest rate is negative, counterparties can either repay the outstanding borrowing amount minus interest, or they can repay the outstanding borrowing amount and receive the interest at the same time, depending on the set-up at the relevant national central bank (NCB).

Q18. Will the “discount” on the interest rate be computed in a way that takes into account banks in a deleveraging process?

Yes, there are two ways of calculating benchmark net lending: one for banks with zero or positive eligible net lending in the period 1 April 2018 to 31 March 2019, and another for banks with negative eligible net lending in that period. The benchmark is taken into account for all three lending criteria.

Q19. Does the lending threshold of 0% apply only to the periods from 1 March 2020 to 31 March 2021 (special reference period) and from 1 October 2020 to 31 December 2021 (additional special reference period) or the whole of the period between 1 April 2019 and 31 March 2021 (second reference period)?

It only applies to the special reference period – i.e. the period from 1 March 2020 to 31 March 2021 – and for the additional special reference period, i.e. the period between 1 October 2020 and 31 December 2021. For the second reference period – i.e. the period from 1 April 2019 to 31 March 2021 – the initial modified lending criterion applies, i.e. between 0% and 1.15%.

Q20. If a corporate reorganisation involving TLTRO III participants in the first seven TLTRO III operations occurs after 31 March

Article 6a of the TLTRO III Decision specifies the following details:

  • for the second and the special reference period, the eligible net lending of each individual institution would be assessed against their respective individual benchmarks;
  • for the additional special reference period the resulting institution would need to send a revised first report combining the data of the involved institutions which will be assessed against the eligible net lending of the combined institution during the additional special reference period;
  • if a more favourable rate would have been warranted on the basis of the relevant data for the second reference period and the special reference period depending on the participant’s individual lending performance(s), these individual performances would be assessed against the respective benchmarks.
Early repayment

Q21. Is voluntary early repayment possible under TLTRO III?

Yes. Article 5a of Decision ECB/2019/21, as amended, provides that:

  • as of September 2021, participants in the first seven operations will, on a quarterly basis, have the option of terminating or reducing the amount of a TLTRO III operation before maturity, provided that at least one year has passed since the settlement date of the TLTRO III operation in question;
  • starting from June 2022 participants in the new additional operations have, on a quarterly basis, the option of withdrawing from or reducing the amount borrowed in the new TLTRO III operations before maturity.
  • ECB/2022/37 allows for three additional early repayment options, with settlement of the respective early repayment amounts on 23 November 2022, and 25 January and 22 February 2023. The deadline for communicating repayments for the November 2022 option is one week before the settlement on the early repayment. The normal deadline is two weeks. The shorter period in November 2022 was implemented to allow counterparties more time to analyse the consequences of the recent TLTRO III changes before making a repayment decision.

Q22. Can an institution participating in TLTRO III operations voluntarily repay only a fraction of its outstanding amount under TLTRO III? Can an institution spread the repayment of its outstanding amounts over time?

Outstanding amounts under TLTRO III can be repaid in part or in full on any of the dates that are listed in the indicative calendar for TLTRO III voluntary repayments. Counterparties can use each and any of these dates.

Reporting requirements

Q23. What does the reporting format look like?

Reporting template B is used for the calculation of the benchmark net lending and the assessment of the lending performance threshold. It needs to be completed for the period from 1 April 2018 to 31 March 2019 (first reference period) for the calculation of the benchmark net lending and for the period from 1 April 2019 to 31 March 2021 (second reference period) in order to assess the modified initial lending threshold between 0% and 1.15%. In addition, if a counterparty would like to benefit from the additional discount granted by the Governing Council on 30 April 2020 and 10 December 2020, it also needs to provide the template referring to the period from 1 March 2020 to 31 March 2021 (the special reference period) and the third report from 1 October 2020 to 31 December 2021 (the additional special reference period) in order to assess the lending thresholds of 0%.

In order to allow self-securitised loans to be taken into account in the reference outstanding amount (which is the sum of outstanding amounts of eligible loans and outstanding amounts of self-securitised eligible loans as at 28 February 2019), a new template (Reporting Template A) was introduced by Decision ECB/2019/21, as amended, in order to account for the optional inclusion of self securitised loans in the reference outstanding amount via supplementary items.

Q24. If a participant in one of the first seven operations provides the report for the period between 1 March 2020 and 31 March 2021 (special reference period) and exceeds the relevant benchmark, the report for the period between 1 April 2019 and 31 March 2021 (second reference period) will not be used to calculate the interest rate. Is the report on the second reference period still mandatory?

Yes, the report for the period between 1 April 2019 and 31 March 2021 is mandatory for analytical purposes.

The benefits stemming from the special reference period will remain even if the report is not provided, but the counterparty shall incur a penalty of €5,000.

Q25. If a counterparty exceeds the benchmark between 1 March 2020 and 31 March 2021, the report for the period between 1 April 2019 and 31 March 2021 will not be used to calculate the interest rate. In this case, is the auditor’s evaluation expected for this period or only for the special reference period between 1 March 2020 and 31 March 2021?

In this case, the auditor’s evaluation of the second report mandatorily includes only the results for the special reference period between 1 March 2020 and 31 March 2021. However, the counterparty bears the risk that if, after checking the auditor’s evaluation, the data of the special reference period are wrong and the benchmark during this period is not exceeded, the lack of the auditor’s evaluation of the second reference period would prevent a favourable rate from being applied based on the assessment of the second reference period.

Q26. What are the reporting obligations of an institution participating in TLTRO III series?

Article 6 of Decision ECB/2019/21 states that participants are required to submit data to the relevant NCB in accordance with the TLTRO III calendar.

All participants must submit the “first report” which includes the reference outstanding amount for the purposes of establishing the participant’s borrowing allowance and bid limits, and data relating to the first reference period for the purpose of establishing the participant’s benchmarks.

Participants that first participate in TLTRO III.1-7 must submit the “second report” which includes data relating to the second reference period for the purpose of determining the applicable interest rates. The second report also optionally includes data relating to the special reference period which are provided on a voluntary basis and would also contribute to determining the applicable interest rates.

The “third report”, which includes data relating to the additional special reference period for the purpose of determining the applicable interest rates for the additional special interest rate period, must be provided by all participants. In cases where counterparties voluntarily repay all their operations in September 2021, December 2021 or March 2022 they do not need to provide the third report.

Participants are expected to submit accurate and complete data in accordance with the TLTRO III indicative calendar. For details of the required evaluation of data by an external auditor, please see Article 6(6) of Decision ECB/2019/21.

Any correction to those reports, in case of a group composition change or a corporate reorganisation, should be communicated to the relevant NCB under the conditions specified in Article 6. Additionally, any correction to those reports, if a participant notices an error, should be communicated to the relevant NCB without delay as specified in Article 7 of the above-mentioned Decision.

External auditing

Q27. How will the data reported by an institution participating in TLTRO III operations be audited?

Article 6 of Decision ECB/2019/21 states that the quality of the data contained in the two reports which a participant must submit to the relevant NCB for the purposes of establishing its borrowing allowance, benchmark and interest rate must be evaluated by an external auditor. Article 6 also spells out the various elements that the auditor’s evaluation should contain.

In light of the deadlines set out in the indicative calendar published on the ECB’s website, the external auditor may evaluate the data in the first report, along with other aspects, as part of its audit of the participant’s annual financial statements. The results of that first evaluation must be submitted by the deadlines specified in the indicative calendar. Please note the difference in deadlines depending on whether a participant firstly participates in the first three TLTRO III operations (deadline of 21 January 2021) or in TLTRO III.4-7 (deadline 16 July 2021) or from TLTRO III.8 onwards (deadline 6 April 2022).

The results of the external auditor’s evaluation of the second report must be submitted together with the second report by 17 August 2021.

The results of the external auditor’s evaluation of the third report must be submitted together with the third report by 17 May 2022.

Specific deadlines are envisaged for auditors’ evaluation of additional items relating to the inclusion of self-securitised loans.

Q28. Will it be possible to have a derogation regarding the deadlines for submitting the first, second and third audit evaluations as spelled out in the TLTRO III calendar?

The results of the auditor’s evaluations must be submitted by the deadlines specified in the TLTROs III calendar published on the ECB’s website. In the event of late submissions, Article 7 of the TLTRO III Decision specifies financial penalties that increase with the duration of the observed delay.

If a counterparty has not provided the audit evaluation 14 days after the initial deadline for the auditor’s evaluation of the first report, it will need to repay the operations to which the specific deadline applied to.

If a counterparty has not provided the audit evaluation 14 days after the initial deadline for the second or third report, the less favourable interest rate will apply for the relevant period.

Q29. If a counterparty submits the reporting template but ultimately decides not to participate in any TLTRO III operation, does it still have to submit the auditor’s evaluation?

No. An auditor’s evaluation is only necessary if the counterparty participates in an operation.

Q30. If a counterparty’s net lending does not meet the initial modified lending threshold, will it be necessary to carry out the auditor’s evaluation of the second report?

No. An auditor’s evaluation of the second report will only be necessary if the counterparty has exceeded its benchmark outstanding amount of eligible loans. Nevertheless, the second report must still be provided, or else penalties will be imposed (see Article 7(1)(c) of Decision ECB/2019/21).

Q31. If a counterparty’s net lending does not exceed the lending threshold for the special reference period, will it be necessary to carry out the auditor’s evaluation of data related to that period?

No, the auditors’ evaluation is only necessary if the counterparty exceeds the relevant threshold in order to obtain the benefits. No sanctions are envisaged if the counterparty decides not to provide data on the special reference period.

Q32. If a counterparty’s net lending exceeds the lending threshold for the special reference period, will it be necessary for the auditor’s evaluation of the second report to provide results of the audit of data related to the second reference period?

No, the auditors’ evaluation will only be necessary if the counterparty exceeded its benchmark outstanding amount of eligible loans.

Q33. If a counterparty’s net lending does not exceed the lending threshold for the additional special reference period, will it be necessary to carry out the auditor’s evaluation of the third report?

No, the auditors’ evaluation will only be necessary if the counterparty exceeded its benchmark outstanding amount of eligible loans.

Q34. If a counterparty’s net lending does not exceed the lending threshold for the additional special reference period, will it be necessary to provide data on this period?

Yes, otherwise there will be sanctions in accordance with Article 7(1)(f) of Decision ECB/2019/21. Those sanctions apply to participants of all TLTRO operations.

Q35. Is it possible to change TLTRO III group compositions after the December 2020 Governing Council decisions on TLTRO III? Is it possible to make changes in the group composition for the additional TLTRO III (8-10) operations? Will a new deadline for the first report’s audit evaluation be introduced for such cases?

In line with the Governing Council decision on 29 January 2021, changes in TLTRO III group compositions were allowed until 15 February 2021 (ahead of TLTRO III.7) by adding to a TLTRO III group new credit institutions that were not yet participating in TLTRO III or that were individually participating in previous TLTRO III. Individual participants can also join non-TLTRO III participants or other TLTRO III participants to form a TLTRO III group. Those non-participant credit-institutions must fulfil the requirements of Article 3.3 of Decision ECB/2019/21 as amended.

After 15 February 2021, there is no possibility of changing TLTRO III groups except for the circumstances provided in Article 3.6 of Decision ECB/2019/21. There is also no specific possibility of changing TLTRO III groups due to the participation in the last three TLTRO III operations.

The relevant factor in determining the deadline for providing the auditor’s evaluation of the first (revised) report is the timing of the first participation in the new composition according to the indicative calendar.

In the case of already existing participants joining the new operations following a corporate reorganisation after 1 April 2021, revisions to the first report will need to be submitted by the deadlines specified in the indicative calendar. In such cases the new/updated auditor’s evaluation must be provided by the new deadline specified for the new operations (6 April 2022).