Refinancing operations: an evolving monetary policy instrument

To participate in Eurosystem refinancing operations (as eligible monetary policy counterparties), banks have to sign an agreement and pledge collateral with their national central bank.

Under the standard framework, prior to 2008, operations were carried out on a limited basis via auction, and were used to steer overnight interest rates in the interbank market. Since 2008, refinancing operations have been carried out at a fixed rate with full allotment.      

Main refinancing operations (MROs)

These are carried out every Tuesday and have a maturity of one week. They are the Eurosystem’s main tool for providing liquidity and steering interest rates in the unsecured overnight interbank market.

Under the standard framework in place before 2008, MROs were carried out via an auction system and were mainly at variable rates. Banks submitted bids to their national central bank, indicating the amount of liquidity they needed and the proposed interest rate (which had to be higher than the minimum rate set by the ECB). Bids were then met in descending order, starting with the highest rate bid and ending with the lowest, until the full amount of the operation had been allotted.

Since 2008 and the introduction of non-standard measures, the Eurosystem has conducted its operations on a fixed rate full allotment (FRFA) basis. This means banks can borrow as much as they want at the rate set by the ECB, provided they post sufficient assets as collateral.

Longer-term refinancing operations (LTROs) and targeted long-term operations (TLTROs)

The standard framework also includes longer-term refinancing operations or LTROs, which usually have a maturity of three months. Since 2007 and the financial crisis, they have been carried out more frequently and with maturities of up to three years (very long-term financing operations or VLTROs, which were conducted from December 2011 to February 2012).

Since September 2014, the Eurosystem launched three series of targeted long-term refinancing operations (TLTROs). Despite their different calibrations, these three series had a common objective of stimulating bank lending to the real economy (loans to non-financial corporations and households excluding for house purchases). Contrary to standard refinancing operations, the amount that banks could borrow to these targeted operations was limited. The last operation, the TLTRO III.10, matured on 18 December 2024.

Finally, to keep money markets operating smoothly during the pandemic, the Eurosystem also introduced pandemic emergency longer-term refinancing operations or PELTROs.

Fine-tuning operations

These operations bridge the gap between two refinancing operations, and enable additional liquidity to be granted or withdrawn, depending on the Eurosystem's steering needs. Their maturity is variable. They can be implemented to mitigate shocks to bank liquidity, and can be used to steer overnight rates on the interbank market. Unlike other refinancing operations, they can be carried out with a more limited number of counterparties selected by the Eurosystem, and executed via quick tenders.

Refinancing operations in foreign currency 

The Eurosystem’s toolkit includes refinancing operations in foreign currency. The terms and conditions of these operations (maturity, frequency, rate, tender procedure) are at the Eurosystem’s discretion.

The participation to these operations is possible for monetary policy counterparties only. In addition to the standard agreement, it requires the signature of additional legal documents.