In response to Financial Wonderland: Reader Questions on Negative Rates and Money Heaven, several readers asked “Why do banks park funds at the ECB for negative returns instead if simply keeping cash?”
That’s a question I meant to answer in the above Financial Wonderland link, but let’s answer it now.
The two applicable answers are insurance, and space. It would cost more money for insuring bank vault cash that it costs in negative interest.
The insurance reason presumes banks have vaults big enough to store all that cash in the first place.
Here’s a way to visualize amounts of $100 million, $1 billion, and a $trillion.
Images from Visualizations of the US Debt Ceiling.
One Hundred Million Dollars Visualized
$1 Billion Visualized
$1 Trillion Visualized
Given that the ECB still has €500 notes, a stack of euros would only take 20% of the space of a stack of the same number of dollars.
Still, it’s safe to assume that the pile of cash on deposit with the ECB would not fit in bank vaults.
If you want a bonus reason, should a bank demand delivery of cash, some auditor would demand a count of every bill.
Mike “Mish” Shedlock