Before the European Central Bank’s announcement of lower interest rates and an expansion of its quantitative easing package, the eurozone’s banks looked severely exposed to negative rates. But Mario Draghi may have found a way for them to take some positives from the negatives.

New “targeted longer-term refinancing operations” (TLTROs), announced by the ECB President on Thursday, will allow banks to borrow from the central bank at a rate that could fall as low as the deposit facility — currently minus 0.4 per cent — depending on how much they lend to businesses and consumers.

“They’ve helped the banks out massively here,” said Gary Kirk, a portfolio manager at TwentyFour Asset Management, which buys eurozone debt. “The TLTRO that he [Mr Draghi] announced . . . is a very, very sweet way to circumvent the negative rate issue that has been creating really quite poor sentiment around bank earnings.”

Senior bankers had warned this week that negative rates would further weaken their profitability, while bank shares and bonds fell sharply earlier this year on similar concerns. “Banks are being fed free money here,” Mr Kirk added. “You would expect to see a significant lift in people’s perception of bank risk.”

David Fuller's view

Here is a PDF of the FT's article.

Might many of the investors who sold Europe’s banks near the highs of today’s temporary rally have been unaware of Draghi’s sweetener to encourage lending discussed in the Article above?

That is certainly possible but the markets should tell us tomorrow and over next week.  It is a long time since we last saw some relative strength in bank shares, which remain a good indicator of a healthy economy.