Targeted Longer-Term Refinancing Operations – history and evolution from the perspective of commercial banks’ ability to meet liquidity requirements

The outbreak of the Great Financial Crisis in 2008 forced the largest central banks to use new tools, which gradually began to become part of their unconventional monetary policy. The most spectacular example of the new policy was asset purchases. However, due to the specific nature of the euro area, the ECB has long abstained from launching such purchases and, as a result, has long resorted to its constantly improved refinancing operations. As a result, these refinancing operations have become one of the most important tools of the Eurosystem. They retained their important role even after the ECB launched its expanded asset purchases in 2015, and the subsequent pandemic crisis further underlined their importance. Such operations contributed (together with asset purchases) to the creation of a huge excess liquidity, which had a significant impact on the behaviour of the participants of the banking system. The application of these operations coincided with the efforts of the supervisory authorities to gradually enforce the new liquidity requirements on banks. The aim of this article is to answer the question of how both the course of refinancing operations and their subsequent phasing out affected the ability of banks to meet these requirements.