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Tuesday, August 16, 2016

Banks across Europe are considering taking a drastic step to avoid negative rates...

Business Insider
August 16, 2016
Banks across Europe are considering the possibility of physically storing cash in vaults as a means of avoiding the charges incurred for leaving money with the European Central Bank thanks to negative interest rates, according to a report from the Financial Times.
As it stands, banks on the continent are effectively paying the ECB to look after their money, paying a fee of 0.4%, and in an era of rock-bottom profitability, these charges are having a big impact.
According to the FT, the ECB’s NIRP has cost European banks €2.64 billion since its introduction.
The ECB has been driving rates further below zero since it first introduced the negative deposit rate in the summer of 2014, with the current deposit rate for banks standing at -0.4%. The basic idea governing negative rates is that by being given a penalty for storing cash with the central bank (in this case the ECB) banks will be spurred into lending their cash, which in turn helps to boost inflation. So in other words, if a bank decided to not lend that money, it would mean it would be losing cash each month by just letting it sit there.

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