High lending rates contribute to higher loan delinquencies, which in turn increase the need for banks to make provisions on past legacy loans by increasing lending rates; so, ex post, higher delinquencies justify high lending rates, and there is a mutually reinforcing spiral of high lending rates, high credit risk and poor macroeconomic conditions. The TLTROs are designed to contribute to breaking this spiral.
They are expected to ease overly tight conditions through several channels. •  The first and most important channel is through a reduction in term funding costs for banks.