Long Term Refinancing Operation (LTRO)

A Long Term Refinancing Operation or LTRO is a kind of central bank intervention that is used by the European Central bank (ECB) to stimulate the economy. LTROs were introduced in the aftermath of the financial crisis. In recent years, the ECB started TLTROs. On this page, we discuss why LTROs were introduced, how the main refinancing operations work, and how the more recently introduced TLTROs are structured.

Why LTROs were introduced

Before we start, let’s first discuss why the European Central Bank started LTROs. In the aftermath of the financial crisis, the ECB lowered interest rates to stimulate the economy. Lowering the short-term interest rate is the main instrument that it typically uses. The problem was, however, that interest rates could not be lowered further. In particular, interest rates were at the zero-lower bound. A second problem was that, despite the lower interest rates, banks were also unwilling to borrow money from the central bank to lend it out.

This forced the ECB to come up with ‘unconventional’ measures to stimulate the economy. Buying government bonds was one type of unconventional monetary policy. The other one was the introduction of LTROs.

Long Term Refinancing Operation definition

The LTRO definition is the following. It is a type of financing in the form of loans provided to commercial banks, structured in the form of repurchase agreements (repo’s) with a maturity of three years. These long-term refinancing operations were introduced in 2011 and provided considerable liquidity during the European Debt crisis. The introduction of these LTROs is commonly referred to as LTRO I. The main refinancing rate or interest rate that is applicable is set by the ECB.


After LTRO I, there was a second round of long-term refinancing done by the ECB in 2014. These LTRO were introduced to improve the funding conditions for companies and individuals, with the exception of mortgages. Because they were introduced to improve lending particularly in certain areas, there were called TLTROs, or targeted LTROs. Thus, the TLTRO definition is similar to that of LTRO, but targeted to stimulate banks to lend more rather than improve liquidity in the financial system.

Difference with standard refinancing operations

The difference between LTRO and other types of refinancing operations that were available before its introduction, is that the loans were much longer in maturity. Hence, the ‘long-term’. This provided banks with a stable source of funding that they could rely on for a considerable period of time. The banks did not have to worry about the need to roll-over the financing.


Long-term refinancing operations (LTROs) are a kind of long-term cheap loans provided to commercial banks in the Eurozone after the financial crisis. They were first introduced during the European Debt Crisis and are considered a type of ‘unconventional’ monetary policy.

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