By Paulo Santos:

Sometimes, there is news that isn’t what it seems. Today, we got one of those: Deutsche Bank (DB) saying that it didn’t take advantage of the LTRO due to its wish to keep its reputation.

But is that a good explanation for Deutsche Bank’s attitude?

I reckon it isn’t. There’s a much better explanation, and as such, much more likely to be the true reason.

The LTRO finances banks for up to three years, thus removing refinancing risk on what the banks choose to buy and deliver as collateral. So, buy they do, with abandon, as I’ve shown previously.

But there is a problem, precisely for German banks. What they can deliver as collateral and buy on a moment’s notice is government debt. And the LTRO finances these assets at a 1% rate. It so happens that to make money with little risk on this scheme, you need to buy

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