Banks Begin Charging for Euro Deposits After ECB Imposes Fees
Oct 17, 2014 - 20:41
Oct. 17 (Bloomberg) -- Banks are starting to charge their customers for depositing large amounts of euros, passing on fees imposed by the European Central Bank, rather than paying interest.
Bank of New York Mellon Corp., which holds money for institutional investors, began charging for euro deposits on Oct. 1, Chief Financial Officer Todd Gibbons said today on a conference call. Goldman Sachs Group Inc. also is among firms with fees, and Credit Suisse Group AG has told clients it’ll pass along so-called negative interest rates, people with knowledge of their decisions said.
The reversal from paying interest to charging it comes after the ECB started charging 20 basis points, or two-tenths of a percentage point, in fees for funds parked at the bank. Brian Shea, BNY Mellon’s co-vice chairman, said clients have reduced their euro deposits a bit since the imposition of the charge.
“What we’re doing is essentially passing through the 20- basis-point fee that we’re absorbing from the European Central Bank,” Shea said. “We’re seeing everybody else do it.”
JPMorgan Chase & Co. is imposing fees as well, the Wall Street Journal reported earlier today, citing unidentified people familiar with the matter. A spokeswoman for the bank declined to comment.
Interest rates have fallen below zero before. Two years ago, some custody banks charged depositors to hold Danish kroner and Swiss francs as customers fled from the euro. U.S. Treasury securities traded at negative yields during parts of the 1930s and 1940s, and Switzerland imposed negative interest rates in the 1970s as part of capital controls.
To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net David Scheer, Steven Crabill
Traditionally that's what banks did for deposits in the formally "at call" checking or transaction deposits. The money was actually stored so people could pay bills via cheque and hence you paid a storage fee. Today it is the same thing but involves electronic transfer instead. In earlier times the cash was supposed to be fully stored but bankers still loaned it at interest on the sly. A typical example was "ways and means" purchase of government debt by the BOE.
At a later stage the rule became to keep a 10% fractional reserve of the "checking accounts". (note the higher tier interest bearing accounts are not really at call protected accounts) At a later stage the fractional reserve cash was invested in highly liquid government bonds. This is still the rule for US banks, or at least until very recently.
If you don't like storage fees, keep your money at home and use credit card and pay your credit bill once a month with cash.
And if you don't like devalued fiat over the long term then you you'll have to store value in gold (while it is reasonably priced as of current). If gold becomes overvalued then the other choice is government bonds.
The reality of the European current account surplus isn’t the scariest part, it’s that the Germans resolutely believe that they are the being economically prudent by maintaining their eye-watering surplus, and that others must follow their example.
Europe and the world has been sold a stupendous fallacy, which is that the ‘sovereign’ debt crisis was the exclusive fault of debtor nations. Of course, plenty of people know this is nonsense, but what matters is what has occurred in practice, what the policy outcomes have been. And they have been entirely premised on the argument that debtor nations were at fault, and that debtor nations are responsible for correcting the imbalances.
If you are running a massive current account deficit, largely due to the policies of your trading partners (though not entirely; this varies country to country), then eliminating the deficit on your own means drastically reducing domestic demand, which used to be called a depression.
The ECB mostly cured the immediate threat in Europe, which was a liquidity crisis. The collapse in demand in deficit nations has done a lot to alleviate the larger issue of a reliance on foreign capital inflows. But now the gravest challenge of all looms over the continent; what to do about entrenched unemployment. The ongoing intransigence of the Germans leaves little space for hope. They still hold fast to the belief that labour market reforms and fiscal rectitude will save the continent, when in fact measures to stimulate private consumption (lower VAT taxes and higher wages), combined with public investment, are desperately needed. (EDIT: in Germany, that is.)
Another alarming musing one might engage in is the likely temptation within China to push for larger trade surpluses in the coming years. China’s problem is fairly simple. It grew rapidly by exporting capital and utilising foreign (mainly American) demand. This required a massive credit bubble in the US. After that popped, China charitably assumed the mantel of the credit-binger, shifting the burden of savings absorption from foreigners to locals. But the kind of demand was quite different. Whereas much of the debt being accumulated in the US was funding consumption, in China it has overwhelmingly funded investment, much of which has doubtless been productive, however far too much has simply fuelled severe overcapacity.
The temptation for any country that has seriously over-invested is to make the problem someone else’s. It is all well and good to say that China must rebalance away from investment spending towards household consumption, but in practice this will prove very challenging, I fear. As the Chinese will be well aware, if you can enlist the help of foreigners to absorb your excess production, it provides a relief valve as you attempt the difficult necessary adjustments internally. We’re already seeing this play out quite obviously in sectors such as steel. And more generally in the spike in trade surpluses this year.
China may or may not continue to push for higher trade surpluses. But it is something to keep an eye on. And it is certainly worth asking the question, with so many countries seemingly intent on pushing for higher trade surpluses (a large part of why inflation pressures are absent globally), who is going to run the world’s deficits?
It comes back to the response to the GFC which never actually addressed the massive imbalances which had led to it but rather addressed only bits of the problem.
So essentially in the years since then
We have never really tidied up the underlying imbalances (CADs and Ss)…..
We have never really sorted out how the flows which represent those imbalances are circulated (investment flows, speculative positions taken in asset markets of all sorts, emerging markets)
We have never really come to grips with the banks which were handling those flows and how they are handled, leveraged and accounted for to both national taxpayers and their shareholders (too big to fail, mark to market, buyer of last resort etc)…
In the case of the Americans they said they would go for growth right from the get go of late 2008. In the case of the EU they shelled out blame to the Greeks etc. Not saying either will actually work, but the Americans appear to have a more consistent game plan.
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