Draghi seen handing 700 bln euros to banks in ECB offer

By Alessandro Speciale & Andre Tartar

Mario Draghi’s newest stimulus tool will hand banks more than 700 billion euros ($950 billion) of cheap funding, economists say.

The European Central Bank president’s targeted lending program for banks will boost credit for the real economy as planned, and at the same time help keep the financial system flush with cash, according to the Bloomberg Monthly Survey of 45 economists. Draghi may address the topic today when he testifies at the European Parliament in Strasbourg for the first time since elections in May.

The ECB has identified lending to companies and households as a key weakness in the euro area’s fragile recovery. The so- called TLTRO program, part of a wider package of measures announced in June, offers as much as four years of low-cost funding tied to bank lending that Draghi said this month could ultimately provide as much as 1 trillion euros.

“The take-up should be large -- the money is cheap and banks should feel no stigma about accepting a free lunch,” said Alan McQuaid, chief economist at Merrion Capital in Dublin, who predicts banks will take the maximum available. “With any luck, Draghi’s next problem will not come until 2018, when 1 trillion euros needs refinancing.”

‘Strong Incentive’

Lenders probably won’t take the full amount, the survey shows. They’ll borrow 305 billion euros in the first TLTRO rounds this year, compared with an ECB cap of about 400 billion euros, according to the median estimate of economists. That’ll rise to 710 billion euros after quarterly operations in 2015 and 2016 tied to new loans, the survey shows.

Three-quarters of respondents said the measure will increase credit provision to companies and households in the euro-area...