Nearly 60% of German banks are charging negative interest rates from corporate clients on deposits while 23% are doing the same for retail customers, revealed a survey by the German central bank.
Two weeks after the European Central Bank cut interest rates deeper into negative territory, from minus 0.4% to minus 0.5% in mid-September, the Bundesbank surveyed 220 lenders.
These practices are proving to be controversial in Germany where ECB has been attacked for penalizing savers. ECB President Mario Draghi is being depicted as the “Count Dracula” a vampire sucking the savings dry in Germany’s tabloids.
Everyone Boarding the Negative Interest Rate Train
Last month, James von Moltke, Deutsche Bank’s CFO said Germany’s largest lender will start changing its client's deposits.
Germany’s second-largest listed lender Commerzbank has also started approaching wealthy retail customers holdings deposits of more than €1m. Last month, Berliner Volksbank, the country’s biggest co-operative lender said it would start applying minus 0.5% on any deposits over €100,000.
State-owned German development bank KfW is also preparing to pass on negative interest rates to its borrowers.
According to a german price comparison website, Biallo.de, 140 lenders are already charging negative interest rates.
Now to give banks some relief from the negative rates, the ECB is introducing a “tiering” system that will exempt their part of the deposits with the central bank from charges.
ECB Warning About their Own Policy Measure
The eurozone economy has been struggling in the aftermath of the debt crisis in 2011.
To boost the flagging economy, negative interest rates were first introduced in the eurozone in 2014. But its knock-on effects have put a dent in the weakening earnings of Europe’s banks.
ECB vice-president, Luis de Guindos in a speech on Monday said the profitability of European banks had been “persistently low” and their aggregate return has dropped below 6%.
“This low interest rate environment also affects the investment strategy of the asset managers and in this respect, this part of the financial system could give rise to bigger risks,” Guindos told CNBC on Wednesday.
So, the ECB is warning that their own policy measures could cause systemic risk. This Mati Greenspan, a senior analyst at eToro says is “great” because,
“The ECB is finally admitting that they're policy of excessive stimulus and artificially low interest is actually incentivising investors to take way too much risk.”
As we reported, this challenging time for the financial industry is good for Bitcoin. Negative interest rates give an investor less incentive to save but with Bitcoin, a cryptocurrency that has established itself as an “institutional store-of-value asset class” and has registered more than 100% gains in 2019 alone, they have the incentive to hodl.