I’m not sure that the banks are forced to pass negative rates to customers. You give your money to the bank. They can loan it out (typically to other customers borrowing for mortgages, car loans, etc.) or invest in government securities or just sit on it. If the government rate is negative, they should just sit on it. Rates generally track the central bank rates, but I’m missing the piece of the puzzle where the banks are required to pour your savings into bonds.
I thought this was kind of interesting, but there seems to be a little something missing linking the what may happen to the what will happen.
It’s logistically difficult for large institutions to just sit on money. Where do you put, say, $100m that you need liquid? You can store it in cash, like actual physical cash, or equivalent, like vaults of gold, but that has its own expenses, and gets more and more awkward as the amounts go up. What a person would do in that circumstance is to store it electronically… which means in an account with a financial institution. Where does a financial institution park $100m they don’t want to haul around in bills? Also in an account with a financial institution, in this case the uber-financial-institution, a central bank (via the mechanism of buying short-term “government paper”, which is all electronic these days, and effectively functions like a bank account). Even if the central bank is charging 0.5% or something for the favor, it’s probably not going to be cheaper to withdraw the money from the central bank and have to store it physically.
However, I agree that there’s no real reason the rates will be passed on. Central bank rates going negative isn’t unprecedented or even that uncommon, and has not in the past led to negative retail-banking rates. Does the article author have a reason to believe that the Swedish case is different, and rates there “may” go negative? As far as I can tell, no. In fact they seem to backtrack at the end, offering an alternate hand-wavy suggestion that maybe banks will raise fees instead. Ultimately, I think clickbait based on a headline that’s pretty much just made up.
Looking at the byline, I see it’s a reprint from Business Insider, which explains it, since clickbait finance “journalism” is what they do.
I’m not sure that the banks are forced to pass negative rates to customers. You give your money to the bank. They can loan it out (typically to other customers borrowing for mortgages, car loans, etc.) or invest in government securities or just sit on it. If the government rate is negative, they should just sit on it. Rates generally track the central bank rates, but I’m missing the piece of the puzzle where the banks are required to pour your savings into bonds.
I thought this was kind of interesting, but there seems to be a little something missing linking the what may happen to the what will happen.
It’s logistically difficult for large institutions to just sit on money. Where do you put, say, $100m that you need liquid? You can store it in cash, like actual physical cash, or equivalent, like vaults of gold, but that has its own expenses, and gets more and more awkward as the amounts go up. What a person would do in that circumstance is to store it electronically… which means in an account with a financial institution. Where does a financial institution park $100m they don’t want to haul around in bills? Also in an account with a financial institution, in this case the uber-financial-institution, a central bank (via the mechanism of buying short-term “government paper”, which is all electronic these days, and effectively functions like a bank account). Even if the central bank is charging 0.5% or something for the favor, it’s probably not going to be cheaper to withdraw the money from the central bank and have to store it physically.
However, I agree that there’s no real reason the rates will be passed on. Central bank rates going negative isn’t unprecedented or even that uncommon, and has not in the past led to negative retail-banking rates. Does the article author have a reason to believe that the Swedish case is different, and rates there “may” go negative? As far as I can tell, no. In fact they seem to backtrack at the end, offering an alternate hand-wavy suggestion that maybe banks will raise fees instead. Ultimately, I think clickbait based on a headline that’s pretty much just made up.
Looking at the byline, I see it’s a reprint from Business Insider, which explains it, since clickbait finance “journalism” is what they do.