Central banks use Targeted Long-Term Refinancing Operations (TLTRO) to inject term funding directly into commercial banks, tying the cost of that capital to the bank’s actual lending performance. [1]
The Targeted Incentive Mechanism
[Bank Alpha Ingests TLTRO Capital] ---> [Must Route Funds to Real Economy] ---> [Meets Corporate Loan Targets]
                                                                                          |
                                                                                          v
[Achieves Policy Rate Discounts] <--- [Qualifies for Negative Interest Rates] <-----------+

TLTRO frameworks are designed to encourage lending to the real economy. If a commercial bank meets specific lending targets for businesses and households, the central bank lowers the interest rate on the TLTRO loan, sometimes offering negative rates that function as a direct subsidy to the bank.
 
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