It Begins: Palace Revolt against ECB’s NIRP
by Wolf Richter
WolfStreet.com
March 4, 2016
If “punishment interest exceeds the pain threshold….”
The Association of Bavarian Savings Banks, which represents 71 savings banks in the German State of Bavaria, has had it with the ECB’s negative deposit-rate absurdity, and it’s now instigating a palace revolt.
In 2014, when negative interest rates first hit Eurozone banks and ricocheted out from there, Germans called it “punishment interest” (Strafzinsen) because these rates were designed to flog banks and savers until their mood improves. But inexplicably, their mood hasn’t improved.
Bank stocks have gotten clobbered as their profits have gotten hit by the negative interest rate environment. Stocks of Eurozone companies in general have come down hard, and the Eurozone economy simply hasn’t responded very well though the ECB is flogging it on a daily basis with its punishment interest.
And so Bavarian savings banks have had enough. The Frankfurter Algemeine has obtained a memo by the Association of Bavarian Savings Banks that openly encourages its member banks to stash cash in their own vaults rather than depositing it at the ECB and paying the penalty interest of 0.3% to the ECB on these deposits.
“The savings banks therefore are asking if it might be more economical for them to keep high cash values in their safes and not - as usual – store them at the ECB,” the memo said.
To estimate total costs and determine which would be the better deal – hang on to the cash or send it to the ECB – the association analyzed the costs of additional insurance coverage needed for these higher levels of cash-in-vault and further discussed some options concerning this insurance coverage, or as it says, for “ECB-cash protection.”
The Rest…HERE
