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TheCountOfNowhere

European Bank Run Anyone ?

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http://news.sky.com/story/1275683/euro-bank-set-for-negative-interest-rates

"Euro Bank Set For Negative Interest Rates"

"The Frankfurt-based institution is widely-anticipated to cut the rate it pays on deposits from high street banks from the current rate of zero to around -0.1%, meaning it would charge them to keep money on deposit."

Now, what would you do if the banks did this ?

I'd join the queue to get my money out.

"The move comes amid growing worries about the long-term economic health of the Eurozone."

Hang on...it was fixed last week.

", there are concerns that it could be heading towards a lengthy period of deflation, marked by falling shop prices and wages."

Oh no!!!! Cheaper prices....we can't have that now can we !!!

I can see this going down well right across europe.

WW3 anyone ?

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I thought the BoE had considered negative rates but ruled it out as it would ruin confidence in money.

Where as printing over £300bn of funny money gives everyone confidence?

Amazing that the inflation in prices is good and deflation is bad, however a negative rate on bank deposits is considered positive.

Luckily banks don't require money to be solvent.

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How are negative interest rates going to help? It will just make people save harder!

That's unless you have a tracker mortgage, then the banks will be paying you every month! that's the kind of thing I would expect in the UK

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How are negative interest rates going to help? It will just make people save harder!

That's unless you have a tracker mortgage, then the banks will be paying you every month! that's the kind of thing I would expect in the UK

It depends who you are trying to help !!!!

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The reason they are doing it lies in the hope that by charging banks for saving their money [rather than paying them] it will encourage them to increase their lending to individuals and businesses, boosting the economy... it also hopes that it might encourage them to divert the money into other assets, such as government bonds/corporate bonds.... which in turn would bring down bond yields and act as a stimulant.... I don't think it'll work, fiddling with rates that are already rock-bottom seems a waste of time really...

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It will be interesting what happens. Will people move their money out of the euro and into sterling? Will that make the B of E cut its rate to weaken sterling? Are there any contagion affects?

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The point is that building bank reserves or penalising them for holding reserves will not increase the bank’s capacity to lend.... loans create deposits which generate reserves.... something TPTB don't seem to understand [or choose to ignore]

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It won't be customers getting negative interest rates on their funds - The central bank will charge high street banks via negative rates to incentivise them to lend it out to people and businesses

It's still mental though, as people and businesses are already saturated with debt.

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It won't be customers getting negative interest rates on their funds - The central bank will charge high street banks via negative rates to incentivise them to lend it out to people and businesses

It's still mental though, as people and businesses are already saturated with debt.

Yep I'm sure savers aren't too bothered about earning diddly squat on their stash....it buys more stuff each day anyway. Deflation bring it on.

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How are negative interest rates going to help? It will just make people save harder!

I'm going to assume this isn't rhetorical... and point out, in advance, that while the policy makes some sort of sense, I think it is dangerous. I'm also going to comment that my knowledge comes from reading about the BoE - not the ECB... so, I'd appreciate any ECB specific information that can be offered here.

In 2006 the BoE started paying interest on central bank reserve accounts. Until this point, from the founding of the BoE, the reserve accounts paid no interest at all. Commercial banks would engage in a 'dance' - every day - where... at about 9am they took (reliable, sovereign) bonds and swapped them with the central bank to provide a reserve account balance to facilitate daytime operations... then, before close of business, they'd buy back as many of these bonds using their remaining reserve account funds... so, when coupons are paid at midnight, the commercial banks received them. Paul Tucker argued in a published paper that it would be "more efficient" if the bonds remained as collateral at the central bank overnight - and, instead, interest was paid on the reserve accounts... thus avoiding the need for the scramble to/from liquid funds at the beginning/end of each day. Besides 'bureaucratic efficiency' - the other argument was that as reserve accounts typically only held a few million overnight... there would be no significant systemic impact from starting to pay interest, at the base rate, on reserve balances.

Fast forward a couple of years - and the news is about commercial banks not trusting each other - refusing to lend to each other in the inter-bank markets. At this point, reserve balances grew substantially... some might argue that QE money went directly into reserve accounts... rather than being lent in the commercial markets. Motivating banks to lend in the markets is clearly the intention of the negative rate policy... perhaps it will work - perhaps it will have unforeseen consequences?

I'd love to see a graph of the reserve balances at the major central banks over - say - the past decade.

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Yep I'm sure savers aren't too bothered about earning diddly squat on their stash....it buys more stuff each day anyway. Deflation bring it on.

Cobblers.

Utter cobblers.

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Read it again...they are charging the savers not the banks

Could you highlight the text saying this in the article please?

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None of this was expected of course. It's quite unsatisfactory that all these measures, which are quite devastating to many people's lives, are happening and despite all the banking fraud and bad practice etc their attitude is that the time for remorse is over and they aren't being held to account even for all the fraud.

Edited by billybong

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Evidence from Denmark is that neg rate led to reduced lending. Paradox. ECB will probably just reduce base rate to above zero and leave deposit rate alone.

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You can see why they bailed out the borrowers when their whole policy is to try and get people to borrow more money. The borrowers are the foie gras goose that lays the golden egg but they have to stuff debt down their throats to get more eggs.

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This is nothing to do with savers accounts? Negative interest rates on people`s bank savings would result in the immediate collapse of the system?

Mattress sales would rocket though.

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