Summary:

• The end of ECB freebies for banks is nigh. I expect the ECB to bump Minimum Required Reserves to 2% in December, with the risk tilted towards an October announcement. Better to make the move when money market spread tightening is still predictable;

• The MRR bump will lower reserve to total asset/liabilities ratio of the banking system in Italy below 1%. Banks in Italy substantially increasing their LTRO/MRO borrowings is inevitable;

• I expect that fixed rate/full allotment is on the chopping block next year. If the ECB introduces a new longer term LTRO, of which I see no use, the borrowing rate will likely be the Marginal Lending Rate.

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