In response to the Bank of England setting interest rates at a record low 0.25% at its last meeting, the Royal Bank of Scotland sent out letters informing some large depositors that negative interest start on Monday.
Postbank, a subsidiary of Deutsche Bank, will charge depositors €3.9 per month starting November, in response to the ECB’s negative interest rate policy.
This is more money out the window for depositors. At the end of this article I have a roundup of banks offering negative interest rates on deposits.
RBS and Postbank Begin to Charge Customers for Deposits
El Economista reports RBS and Postbank Begin to Charge Customers for Deposits.
Royal Bank of Scotland (RBS), an entity in which the British Government controls a 72.6% stake, will begin charging its institutional customers for their deposits in the bank in order to cope with the last rate reduction interest held by the Bank of England (BoE) on August 4. In addition, two other German companies will do the same to cushion the negative rates implemented by the ECB.
According to the newspaper Financial Times, RBS has sent a letter to certain corporate customers of its investment banking division in which indicates that negative interest rates will apply from next Monday.
The negative interest rates affect customers operating in futures and options and therefore maintain deposits as collateral, said the British head a knowledgeable banker plans of the entity.
In the letter, RBS argues that so far have remained at 0% deposit rate, but the time has come where they can not “hold” this level, so begin applying negative interest rates.
Not the Only One
Also, the German bank Postbank, a subsidiary of Deutsche Bank, will charge €3.9 per month to customers to keep their current accounts in order to offset the negative interest rates of the European Central Bank (ECB), reports Reuters.
Ulster Bank, the Irish lender which is part of RBS, also imposes negative rates on large corporations, but does not apply such charges to small businesses or individual customers.
A few days ago German credit cooperative Raiffeisen announced it would begin applying negative rates on customer deposits in September. The policy applies to deposits in excess of 100,000 euros.
The cooperative imposes a negative rate of -0.4%, the same rate the European Central Bank charges for ‘excess’ reserves held at the ECB.
Postbank Scraps Free Accounts for Millions of Customers
Reuters reports Postbank Scraps Free Accounts for Millions of Customers.
Germany’s Postbank, a unit of Deutsche Bank, is to scrap free current accounts for millions of customers in an effort to offset the burden of the European Central Bank’s negative interest rates.
“The market environment, especially low interest rates, make it ever harder to earn money from current accounts,” Postbank board member Susanne Kloess said in a statement.
From Nov. 1 customers will be charged 3.90 euros ($4.41) a month unless they have monthly inflows of 3,000 euros or more, in which case they will still have cost-free access to a premium giro account, Postbank said.
A Postbank spokesman declined to specify how many customers would be required to pay for their accounts, but said it would be the “vast majority” of Postbank’s 5.3 million giro account holders.
More RBS Details
The Financial Times has more details in its report RBS to Start Charging Large UK Clients to Hold Cash.
Royal Bank of Scotland is to charge some large corporate customers for holding their cash, the first sign the Bank of England’s decision to cut rates to historic lows is forcing lenders to collect negative interest from deposit holders.
The state-backed bank has written to certain financial institutions in its investment banking division to warn them it will apply negative interest rates from Monday, according to a letter seen by the Financial Times.
“As you will be aware, there are a number of currencies which now attract negative overnight rates for deposits,” the letter from the bank said.
“To date we have been flooring deposit rates at zero per cent but we have now reached the stage where we can no longer sustain this level of floor. As a result of the continuing interest rate situation we will be implementing negative interest rates.”
The changes affect large customers who must hold collateral in both sterling and euros. Banks are hit by negative rates when they pass through the European clearing houses.
Although interest rates in the UK are not negative, RBS is now opting to pass on the cost of the clearing houses’ charges to about 70 institutions following the BoE rate cut, according to a banker briefed on the plans.
It emerged last month that RBS had written to more than 1m business customers warning them it could charge for deposits if rates fell below zero.
Ulster Bank, the Irish lender that is part of RBS, already imposes negative rates on some large corporates.
Ulster has products priced off Euribor, a European interbank lending rate, which turned negative last year. Ulster’s charges do not apply to small businesses or personal customers.
The Bank of Ireland said on Friday that it would start charging large companies to hold their money on deposit later this year, making it the first domestic Irish lender to impose negative interest rates.
The bank, which is 14 per cent owned by the Irish government, has warned large corporations and institutions that it will charge 0.1 per cent for deposits above €10m from October.
HSBC said last year it would start charging other banks for deposits held in currencies where negative interest rates apply. It confirmed on Friday that the policy would not change. Barclays also said it had no plans to apply negative rates.
Landscape Below Zero
The above image from Negative Rates: How One Swiss Bank Learned to Live in a Subzero World written April 14.
The article notes “Alternative Bank Schweiz AG (ABS) informed its clients that they would have to pay a charge of at least 0.125% to maintain their accounts at the bank starting in 2016.”
The $8 trillion cited is out of date. As of July 6, Bloomberg noted Global Negative-Yielding Bond Pile Nears $10 Trillion.
Negative Deposit Roundup
- UK – Royal Bank of Scotland: Negative interest rates on some large depositors start August 21. One million business customers notified. Rate not specified
- Germany – Postbank: Postbank, a subsidiary of Deutsche Bank, will charge millions of depositors €3.9 per month starting November. “Vast majority” of Postbank’s 5.3 million giro account holders impacted.
- Germany – Raiffeisen: German credit cooperative Raiffeisen announced it would begin applying negative rates on customer deposits in September. The policy applies to deposits in excess of 100,000 euros. The cooperative imposes a negative rate of -0.4%, the same rate the European Central Bank charges for ‘excess’ reserves held at the ECB.
- Ireland – Ulster Bank: The Irish lender Ulster Bank, part of RBS, imposes negative rates on large corporations, but does not apply such charges to small businesses or individual customers.
- Ireland – Bank of Ireland: The bank will charge large companies to hold their money on deposit, making it the first domestic Irish lender to impose negative interest rates. The bank, which is 14 per cent owned by the Irish government, has warned large corporations and institutions that it will charge 0.1 per cent for deposits above €10m starting October.
- UK – HSBC. The multinational bank HSBC said last year it would start charging other banks for deposits held in currencies where negative interest rates apply.
- Switzerland – Alternative Bank Schweiz AG: ABS informed its clients last year that they would have to pay a charge of at least 0.125% to maintain their accounts at the bank starting in 2016.
Postbank Comments
I would not be surprised in the least to see Postbank lose millions of accounts. For the most part, it is the only bank nailing small depositors.
Unlike the other banks going after big accounts, “Postbank customers will be charged 3.90 euros ($4.41) a month unless they have monthly inflows of 3,000 euros or more, in which case they will still have cost-free access to a premium account” a Postbank spokesman said.
Those depositors are highly likely to go elsewhere.
Financial Repression Continues
People are beginning to see the effects of central banks’ financial repression, even if they have not yet placed the blame squarely where it belongs.
The rise of extreme parties on the Left and Right and the Brexit vote are both direct consequences of failed central banks and government policies that benefit the wealthy at the expense of everyone else.
The rise in anger and the rise in the price of gold are also a direct result of an increased belief that central banks do not have everything under control.
James Traub, a contributing editor at Foreign Policy, says people are “mindlessly angry”. Actually, Traub is mindless.
For further discussion, please see How the Global Elites Screws Peons (While Media Fools Cheer).
Mike “Mish” Shedlock
Mish,
Have you seen any analysis of the actual impact on net interest margins of the negative interest rates in Europe or Japan?
It’s about time. People gladly pay $50/month or more for luxuries like cell phone service, cable TV or video games. A measly $4 for banking is ridiculously cheap for the important work they do. By all rights they should charge 50 bucks too.
End this abuse by freeloaders and society benefits.
Important things for who?
I seen a big bank too man , with gargoles stairing out , and it was really important . Them people with desks and suiits have cases tied to their arms not like my neibour who has only a small dog . And people are allways giving them all their money , aaaaall their money man , like a flock who knows where the butcher is , that is how impotant they all are , an there doing it for socity dude , like so that they free the load (that is a joke about freeloader – ha ha) . So importtant is what they is , quantances say they should be strung up for all to see so as we get a good exampul , and at nite too with lamposst to lite it all too .
Iceland had a ball with a few of them in court. We reward ours.
They lend what they do not have, which is a pretty good racket.
Negative Interest Rates and the War on Cash
https://professorwerner.wordpress.com/2016/02/09/negative-interest-rates-and-the-war-on-cash/
Excerpt:
Secondly, let us consider the proposal of introducing negative interest rates in an effort to stimulate the economy. As we know, the proclaimed transmission mechanism of lower rates is via cheaper borrowing costs. In countries where a negative interest rate policy has been introduced, such as Denmark or Switzerland, the empirical finding is that it is not effective in stimulating the economy. Quite the opposite.
This is because negative rates are imposed by the central bank on the banks – not the borrowing public (so please forget the idea that you will be given a mortgage, and paid an extra fee on top to do so). To be precise, they are imposed on the reserves held by banks at the central bank.
This might seem reasonable at first sight: Have not these mean banks been hoarding all the QE cash from the central bank, instead of lending it out?
No. It is a little known fact that the total quantity of reserves held by banks at the central bank is entirely determined by the central bank. Individual banks can try to reduce their reserves, but only at the expense of other banks holding more reserves. This is of course why the type of QE implemented by many central banks – buying financial assets and increasing banks’ reserves at the central bank – have only created another asset bubble, but hardly helped the real economy. Banks cannot lend out their reserves at the central bank. As we show in the book “Where does Money come from?”, banks’ reserves at the central bank are simply credits created by the central bank for the benefit of the banks – central bank money that cannot circulate in the economy.
As a result, negative interest rates on banks’ reserves at the central bank are simply a tax imposed on banks. So why would central banks impose new taxes on banks at this stage? The experience of Switzerland may provide answers: negative rates raise banks’ costs of doing business. The banks respond by passing on this cost to their customers. Due to the already zero deposit rates, this means banks will raise their lending rates (OR they will charge fees since so few are borrowing even at low rates – Winston). As they did in Switzerland. In other words, reducing interest rates into negative territory will raise borrowing costs!
If this is the result, why do central banks not simply raise interest rates? This would achieve the same result, one might think. However, there is a crucial difference: raised rates will allow banks to widen their interest margin and make their business more profitable. With negative rates, banks’ margins will stay low and the financial situation of the banks will stay precarious and indeed become ever more precarious.
As readers know, we have been arguing that the ECB has been waging war on the ‘good’ banks in the eurozone, the several thousand small community banks, mainly in Germany, which are operated not for profit, but for co-operative members or the public good (such as the Sparkassen public savings banks or the Volksbank people’s banks). The ECB and the EU have significantly increased regulatory reporting burdens, thus personnel costs, so that many community banks are forced to merge, while having to close down many branches. This has been coupled with the ECB’s policy of flattening the yield curve (lowering short rates and also pushing down long rates via so-called ‘quantitative easing’). As a result banks that mainly engage in traditional banking, i.e. lending to firms for investment, have come under major pressure, while this type of ‘QE’ has produced profits for those large financial institutions engaged mainly in financial speculation and its funding.
The policy of negative interest rates is thus consistent with the agenda to drive small banks out of business and consolidate banking sectors in industrialized countries, increasing concentration and control in the banking sector.
Same thing going on in industry, but with a different mechanism. Congress has spent the last 40 years legislating small competitors out of business with more and more regulation. Regulation is to industry, what unions are for workers
Exactly. Here’s a interesting but sad tale of an experienced entrepreneur who wanted to renovate and run a restaurant. He gave up.:
http://charleshughsmith.blogspot.com/2015/08/our-government-destroyer-of-jobs.html
Excerpt:
For many years, many of my friends and family who have come to my home and experienced my cooking, have told me that I should “open a restaurant”. Of course, I took this with a grain of salt, :0 since many people say this exact phrase, to many other people. There are a lot of people who are able to create very delicious meals.
About five years ago, there was a restaurant for sale, not too far from my home and business. I thought about buying the restaurant, but at that time, the economy was not doing well and I wanted to take a wait and see attitude before I committed to anything. Eventually, the restaurant closed down and a different type of business opened up in the space that had been a restaurant. That business went under in the middle of 2014 and I decided it might be time to open a retail food establishment in the space that used to be a restaurant. How hard could it be?
I’m seeing the same thing near my home in these strip malls, 15 years ago any stupid ass could open just about any kind of shop and make it… Well, not anymore. I have two large commercial streets near me and one seems to be doing OK, but the other, 1 mile away, has about a 30% vacancy rate. I have no idea what these strip malls were getting for rent these days, but 20 years ago a 25X60 store front was going for $2200/month + 7% of gross receipts. Strip malls, back then, needed about 50% Occupancy rate to break even… One day I’ll have to stop into one of these stores and have a chat because I think both landlord and occupant are balancing a tight game at best. These store fronts along this route were on the way to the mall… The next downturn is obviously going to be very ugly for them. The smell of death is something you never forget.
Thanks for posting this. We are in the end game now. Govt. is baring it’s fangs. No more Mr. Nice guy. As Charles Hugh Smith points out more centralization won’t work in fact it’s the problem! But it will be tried nonetheless. The end game finally comes into focus. Overt heavy handed confiscation of capital. Nothing personal. You have it, we need it, so it’s ours. Thank you for playing. Next!
How do we know, exactly, that banks can’t make money in a zero interest rate environment? Have any banks gone iut of business?
Ignoring existing reserves for simplicity , if a bank creates a loan and keeps 10% as reserve , the negative rate penalty is on that reserve , so to maintain a similar margin as at ZIRP for example, would mean raising interest slightly for the borrower . As banks are sitting on excess reserves in reality , that need not even be the case , as no new reserve needs to be created .
Though Werner , in the above link , looks at how negative rates may be designed to promote speculative large finance , I have also read that negative rates are designed to stimulate interbank lending by penalizing holding (excess) reserves . The two ideas go together I suppose .
So maybe the other problem faced by banks is with depositors – why hold money on deposit while being penalized for doing so ? As a business I can think of reasons for keeping customers , but banks are banks and run by accountants . If they are going to charge for deposits then either they have no need for them , as in cannot or do not profit from them , or they are being opportunistic and introducing costs to the depositor wherever that can be justified somehow .
The irony is that if NIRP is profitable for a bank , ZIRP or higher will be also , and so NIRP is clearly a behind the scenes restructuring of the banking sector , an adjustment of accounts , which also rubs off on how banks will deal with their customers .
Ultimately , to me , it looks like the CB is charging the sector and the public for the quantitative spending that it partakes in , and that means the CB has taken a direct participative role in finance, business and commerce , completely at its own discretion , and at the cost of all others .
So banks may or may not turn a profit under NIRP , but the central bank will , especially in terms of political power, and extending its leverage in the financial world to those that are closest to its way of thinking.
For the rest of us it is just less savings and more debt , with the positive side of that placed into the hands of ‘authority’ … to save us …. much thanks … wasn’t asked for … and much doubt that anyone will show up if it turns out that their plan actually leads to people needing saving, instead of just ambling around ‘being saved’ as is the case now.
Euro bankers are oppressing the people beyond all reason.
I’m glad President Obama realized that QE printing was increasing inequality, and replaced Ben before Ben could oppress the poor anymore. Janet is a bit more level headed, but she should allow rates to normalize already.
A gold standard would be much better. We don’t need no silly inflation. Inflation bails our bank loans by oppressing shoppers. Especially the fixed income elderly.
Instead of decade after decade of bank bailouts, we need banks that follow sound business principles, and thus don’t need to be constantly bailed out.
Obama replaced the Bernank? For the poor folks? ……snicker….
The FED under Yellen raised rates in December 2015. Rates are actually lower now; therefore, the market is driving interest rates down. The FED does not control interest rates.
Australian banks charge an Account Keeping fee of $10.00 per month per account and have been doing so for the last 15 years.
Customers objected but all banks do it so you can’t escape it.
Ironically, this week, our big 4 banks increased the 3 year term deposit to 3.2% from 2.5% the same day our Central bank lowered interest rates to historic lows.
Well yeah, but they’ve been upside down for years.
http://www.nofrackingway.us/wp-content/uploads/2012/03/oz-down-under-.jpeg
http://www.quotesfrenzy.com/wp-content/uploads/2013/12/Life-Love-Quotes-Meanwhile-In-Australia.jpg
http://www.dumpaday.com/wp-content/uploads/2013/01/meanwhile-in-halfway-to-australia.jpg
Problem solved. Isn’t technology wonderful.
https://cnet2.cbsistatic.com/img/1XbPZcRlfayOOsPiP6KM-cw-iZA=/2013/08/16/ad16763c-6de1-11e3-913e-14feb5ca9861/car_1.jpg
Hey wake up ! Now that we can transfer money direct.
Use your app pay peope to people linked to your credit card than pay off your card before interest kicks in. No more Banks holding your money . No more fee always stay below the cap that they can raid your account. Better yet use Gold Money .
i wonder if Deutsche Bank could unload it’s bad loans to Post bank and then just spin it off?
Ironically, Australian politics that help shape our banks over the last 15 years was influenced by the then former Treasurer, Peter Costello and former Prime Minister, Tony Abbott.
When Abbott and Costello ran our system, stupidity ran supreme.
“Because we can.”
Motto of central bankers and assortedassorted fiends throughout history.
More unprecedented hogwash from the elite 0.5%.
It will be interesting to watch just how much the plebes will tolerate. Since there’s no 2nd Amendment across the pond I assume quite a lot.
Why not stage an account withdrawal day and organize a run on the banks? Or will the plebes roll over for the umpteenth time? My money is on a rollover.
This is a grand experiment conducted by the elite poohbahs of the NWO observing the reactions of the little rats in the cage for future reference.
Coming to a theater soon near you.
The EU and Japan is where the charts show negative rates “imposed” by bureaucratic dictat (i.e. not market forces). I find it hard to distinguish Central Bank activities from the Bolshevik USSR or Communist Eastern Europe dictatorial approach. The major difference being that Japan and the EU have not had as much time as the old USSR or Communist Eastern Europe to flatten their economies and equalize everybody at lower, more stagnant standards of living. No doubt, Hillary and Bernie supporters will demand the USA play “catch-up.” It is a sad state of affairs, this progressive march to equality Animal Farm style, with some animals more equal than others. Shows how powerful ideologies like National Socialism and the Keynesian monetary religion are.
Banking is a state-sponsored dictatorship, with too-big-to-fail in the USA and other policies instituted under guise of “saving the economy.” But saving the economy for whom, and from what? Maybe just saving the economy as “spoils” to be divvied up. I suppose having run the USA Treasury Dept. for several presidents, soon Goldman Sachs and the Central Banks will do away with surrogates like Hillary, and directly run the White House, which will become known as the Banker’s House. CentralBank-care will complement Obamacare, with all payments required to go through too-big-to-fail banks for the “skim” (tax, digital storage/transfer fee, negative interest rate; all the same result).
Will be interesting to see if the War on Cash works better than Prohibition or the War on Drugs. Cash bootlegging might be the way to go, with gold, diamonds, etc. part of the new “free market” (blackmarket) mix. There is always opportunity, even if the jobs are illegal.
opportunities.
“policies instituted under guise of “saving the economy.””
Yes, under the “guise” of “saving the economy”, when it was really just “keeping the cronies that own failing businesses and banks from having their ownership liquidated”.
Hi Mish, this is so as you will not keep your money in their banking system.When the reset / new system what ever that may be, the excuse will be, for every thing in the bank you will get so much of the new. If you have any moneys outside the banking establishment, such as the mattress sorry but that is worth NOTHING. It was done 20 – 30 years ago with the Russian countries. After such an event you found the old notes lining the gutters as they had 0 value.
The weird thing about negative rates in developed economies is that they work great as long the economy is stagnant. There is no yield on bonds so money piles into the stock market and the gov can deficit spend an infinite amount to keep the stagnant private economy afloat since they are actually being paid to hold debt.
And this all works great, or at least great for the political and professional class, until the private economy actually does recover. But when the economy does recover, money leaves the overvalued stock market for bonds which are now returning good yields and rising interest rates mean the government can no longer deficit spend, and since the economy has become dependent on government spending to function,the reduction in gov spending leads to financial crisis.
So in what may be the greatest irony in history, we have literally reached a point where the result of a true economic recovery would be immediate economic collapse.
This is amazing. It doesn’t even seem real.
Plenty of places out there to get a good FDIC insured % on your cash:
– Goldman Sachs (the on GE Capital)
– American Express
– CIT Bank
– Synchrony Bank
– FNBO Bank
So stop yer bitchin’
typo…the “old” GE Capital
Itself sort of funny how the press breathlessly reports on the ginned up paid mobs at the WHO and other confabs, Occupy, and BLM. A couple of cars burned and pooped on, a few bumps and scratches. Oooh. Oooh.
If things keep up the way they are now the reporters won’t even be covering the mobs to come because they’ll be cowering in some basement where they think they might be safe.
Mish,
Point of clarification – only One tiny Raiffeisen Co-op Bank ( roughly akin to a US Credit Union ) in a the charming Bavarian lakeside town of Gmünd Is charging negative Rates for Detail deposits. Most Raiffeisen Banks still Pay interest on retail deposits. I’d guess the Gmünd Raiffeisen Might have Assets of €150 Million or so.
http://m.faz.net/aktuell/finanzen/meine-finanzen/raiffeisenbank-nimmt-strafzinsen-von-privatkunden-14381342.html
Negative Interest on Deposits = Just another (but more “in your face”) subsidy to failing banks that have been looted by senior management and shareholders.
I’m still trying to figure out how you “pay a negative interest rate?” Looks like it’s time to start my own bank. i’ll have the slogan, “where we pay you negative interest rates.” I can see the sheep now, “sounds great, where do I sign?”
Pardon my ignorance but if the European banks borrow money so cheap from the ECB, they can lend it at a higher rate and make money, right? Is the banks decision to charge monthly fees to customers is because they is a lack of investment (lending money to investors) and thus they need to make money elsewhere? Not sure I understand the reasoning for the new bank fees here…pls chime in!