Saturday, March 3, 2012  EONIA rate averaging due to the 3Y
LTRO’s  Guest post by Kostas Kalevras  (Twitter: @kkalev)  One
of the reasons that an averaging provision exists for banks
required reserves during a maintenance period is that it
stabilizes the money market interest rate. In the words of the
ECB: The averaging provision implies that institutions can
profit from lending in the market and run a reserve deficit
whenever the shortest money market rates are above those
expected to prevail for the remainder of the maintenance period.
In the opposite scenario, they can borrow in the market and run
a reserve surplus. Banks run deficit/surplus in their reserve
accounts to take advantage of the averaging provision (the
recent drop represents the ECB lowering reserve requirements)
It seems that the latest 3 year LTRO’s might allow a similar
smoothing scenario to occur in the EOINA rate for longer
periods. The latest MRO (7 day refinancing operation) was less
than 30 billion € while the rest of the banks liqui