Negative Ecb Rates Won't Spur Lending-German Banks

[Sancho Panza]

Reuters 22/11/13

'(Reuters) - Radical moves by the European Central Bank to spur euro zone lending through low or even negative interest rates would not be effective and may sow the seeds of future crises, German banking leaders warned on Friday. Deutsche Bank (DBKGn.DE) co-CEO Juergen Fitschen said banks will make lending decisions based primarily on the creditworthiness of the borrower, not due to pressure from the central bank to lend.

"You don't lend because the central bank wants you to put your money there and is threatening to charge you for the money you leave with them. That would be grotesque. We'd create another crisis," Germany's top banker, Fitschen, said.

Martin Blessing, chief executive of No. 2 German bank Commerzbank (CBKG.DE), warned that too much cheap credit could lead to future crises.

The ECB cut its main refinancing rate to a record-low 0.25 percent on November 7 and kept the deposit rate at zero.

"One of the reasons why we are sitting here in the financial crisis was asset price inflation in the U.S. fuelled by too much cheap liquidity," Blessing said.

"I don't know how too much cheap liquidity can solve a problem that was created by too much cheap liquidity," he said. "I just don't get it."

Standard banking technology platforms were not built to deal with negative rates, said one banker at a top 10 bank in Germany, who could not be named because he was not authorized to speak to the press.

"If the ECB were to introduce negative deposit rates, we would have to implement it with great effort; it's not possible with the push of a button," he said.

Otherwise, negative rates would not necessarily weigh on bank profits, Fitschen said.

If negative deposit rates make it difficult for banks to earn money on the so-called net interest margin, the difference in the rate at which banks borrow and lend, then they will seek revenues by charging customers differently, Fitschen said.

"If you can't make money from the current account … you have to change the way you charge for the services. We move more into commission-based services," he said.'

[Executive Sadman]

Of course it would. Followed by immediate collapse of the entire system. Bring it on!

[wonderpup]

"I don't know how too much cheap liquidity can solve a problem that was created by too much cheap liquidity," he said. "I just don't get it."

This one has clearly not received the correct training- he still retains a vestigial ability to think.

[long time lurking]

I would borrow infinite amounts if I was charged a negative interest rate but some how I don't think the negative bit is meant to work that way

[ZeroSumGame]

The current Bundesbank basic rate is -0,38 % since 01.07.2013.

This is itself dependent upon the ECB rate. Should the ECB rate fall then this rate will fall accordingly.

Consequently default German bank lending can be pretty close to ZIRP.

I'd guess this is the last thing an improving (and inflating) German economy needs.

Edited November 22, 2013 by ZeroSumGame

[plummet expert]

I would borrow infinite amounts if I was charged a negative interest rate but some how I don't think the negative bit is meant to work that way

It would be a completely mad plan and can only meant the finacial system is unable to recover - it needs a bust followed by renewal and that'sbeen prevented by pouring billions of printed/electronically craeted non existent money into the banking system. As we have found, this policy only helps bankers to large commisions and bonuses and the stock market to float upward when all economic indicators suggested it should fall harder or remain stagnant since 2008.

They knowest not what they do......when it will it all come home to roost?

[Ash4781]

Technically, many banks remain largely unprepared for the possibility that the ECB may impose negative deposit rates, other senior bankers said.

"A lot of banks are not currently able to calculate it because the systems are not designed for it, said Hans-Dieter Brenner, the head of Helaba, one of Germany's five state-backed Landesbanks.

"The systems would have to be changed pretty comprehensively and in the end, almost every part of the bank would be affected. The costs for that would certainly run into the millions."

Standard banking technology platforms were not built to deal with negative rates, said one banker at a top 10 bank in Germany, who could not be named because he was not authorized to speak to the press.

If negative deposit rates make it difficult for banks to earn money on the so-called net interest margin, the difference in the rate at which banks borrow and lend, then they will seek revenues by charging customers differently, Fitschen said.

"If you can't make money from the current account … you have to change the way you charge for the services. We move more into commission-based services," he said.

eh?

I have to pay money to deposit funds. wtf?

edit: can't wait for Martin's moneysaving tips - top rates of -1.0%

Edited November 22, 2013 by Ash4781

[Venger]

The ECB cut its main refinancing rate to a record-low 0.25 percent on November 7 and kept the deposit rate at zero.

"One of the reasons why we are sitting here in the financial crisis was asset price inflation in the U.S. fuelled by too much cheap liquidity," Blessing said.

"I don't know how too much cheap liquidity can solve a problem that was created by too much cheap liquidity," he said. "I just don't get it."

Total sense. Totally ignored though, for always the problem is businesses, no matter how set to fail, not being able to borrow enough. "Make them lend".

The authorities want healthy solid businesses to take huge risks, whilst trying to keep zombie competitors to remain alive. They with money to spend, paying high prices, trying to encourage people it will all be ok.

Yet some resist it, and too many holding out for superboom money, just like with UK house prices and low interest rates, and people on the margin having full belief authorities are going to engineer 25%-40% HPI (at expense of non-owning dumb savers) by 2018.

Henkel CEO dampens prospects for acquisitions: paper

BERLIN Sun Dec 29, 2013 11:13am EST

(Reuters) - German consumer goods group Henkel (HNKG_p.DE) dampened expectations it was looking at acquisitions soon, saying the market currently offers few takeover opportunities, Handelsblatt reported, citing Chief Executive Kasper Rorsted.

Rorsted's comments contrast with remarks made by Henkel's supervisory board chairwoman, Simone Bagel-Trah, who was quoted three weeks ago as saying that the time had come to focus on takeovers again.

"With the low interest rates, hardly anyone wants to swap businesses for money," the Handelsblatt business daily quoted Rorsted as saying in an interview to be published on Monday.

...more http://www.reuters.com/article/2013/12/29/us-henkel-acquisitions-idUSBRE9BS08920131229

[scepticus]

Negative nominal rates are kryptonite to banks and economic financialisation. No wonder top bankers are not in favour of it.

He's right it wont spur lending. Rather, it facilitates a financial contraction (prolonged GDP recession) without endangering peoples savings via bank failure, or the kind of inflationary intentions many at HPC suspect.

Really, it's a case of 'pick your poison'.

High interest rates and 'safe savings' are really a mutually exclusive conditions.

Anyone selling high interest rates and safe savings is selling economic snake oil.

[billybong]

It's interesting how whenever there's news about Germany it's virtually always about them doing or saying something sensible.

In stark contrast to the UK about which the Institute of Directors and some bankers have called the economic policies revolving around more debt and house price subsidies to be mad and moronic - and that was before the announcement of quite a few more crazy schemes.

Edited December 29, 2013 by billybong