Options embedded in ECB Targeted refinancing operations
monetary policy
permanent working paper
Banque de France Working Paper
In June 2014, the European Central Bank (ECB) announced the implementation of new refinancing operations aimed at supporting bank lending to the non-financial private sector. This paper exhibits and prices options embedded in these Targeted Longer-Term Refinancing Operations. In particular, it shows how these options participate to the incentive mechanisms at play in these operations. Quantitative results point to substantial gains – for participating banks – attached to the satisfaction of lending conditions defined by the scheme.