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The Wrath of Draghi: First German Bank Hits Savers with Negative Interest Rate
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
Deutsche Skatbank, a division of VR-Bank Altenburger Land, which was founded in 1859, is not the biggest bank in Germany, but it’s the first bank to confirm what German savers have been dreading for a while: the wrath of Draghi.
Retail and business customers with over €500,000 on deposit as of November 1 will earn a “negative interest rate” of 0.25%. In less euphemistic terms, they have to pay 0.25% per annum to the bank for the privilege of handing the bank their hard-earned money or their business cash.
Inflation has had a similar effect in the zero-interest-rate environment that the ECB and other central banks have inflicted on savers, but this time it’s official, it’s open, it can’t be hidden. Instead of lending your moolah to the bank so that the bank can lend it out to businesses and retail customers for all sorts of economically beneficial purposes, you’re financially better off hiding it in the basement. Grudging respect is due the ECB and other central banks: through the perverse regime of ZIRP, they have succeeded in transmogrifying “cash in bank” from an income-producing asset to a costly liability.
“Punishment Interest” is what Germans lovingly call this. It’s the latest and most blatant step of the central-bank strategy to confiscate in bits and pieces and over time the wealth that prudent people and businesses have accumulated, and that should have re-entered the economy via the intermediation of the banks.
Last summer, the ECB imposed negative deposit rates on member banks. At first, it was 0.1%, which has now doubled to 0.2%. The reason? The ECB dragged out its “mandate,” which is, as it said, “to ensure” that “price stability” is “below but close to 2% inflation,” which in turn is “a necessary condition for sustainable growth in the euro area.” Whatever. There is not a scintilla of evidence that inflation is required for economic growth; however, there is plenty of evidence that economic growth can stir up inflation. The good folks at the ECB know this. It’s just the official pretext for using inflation to eat up debt – along with savers.
“There will be no direct impact on your savings,” the ECB announced five months ago. “Only banks that deposit money in certain accounts at the ECB have to pay.” But it added ominously, “Commercial banks may of course choose to lower interest rates for savers.”
And that would be good for savers:
The ECB’s interest rate decisions will in fact benefit savers in the end because they support growth and thus create a climate in which interest rates can gradually return to higher levels.
Thank you hallelujah, ECB, for helping out the savers!
This is in line with its policy, as it says, to “punish savers and reward borrowers.” No kidding. To bring some perspective to it all, it adds, “This behavior is not specific to the ECB; it applies to all central banks.”
Now the wrath of Draghi is hitting German savers and businesses. The first bank is already trying it out. Other banks haven’t yet jumped in line. They’re taking a wait-and-see stance but refuse to exclude the possibility.
“There is no planning in that direction,” Direktbank ING Diba told the Welt.
“We believe that negative interest rates on deposit accounts – whether for private or business customers – are a dangerous signal…” said a spokesman of the German Savings Banks and Giro Association (DSGV). But he did not rule out either that some member banks might not follow the same example in the future.
“The banks will try to avoid negative deposit rates,” explained the Federal Association of German Cooperative Banks, but in this zero-interest-rate environment imposed by the ECB, negative rates on large deposits “cannot be excluded.”
“At the moment, we are not imposing negative interest rates on retail customers,” said the second largest bank in Germany, Commerzbank. At the moment….
“We cannot earnestly rule out punishment interest in the future,” said Frank Kohler, CEO at the Sparda-Bank Berlin, the largest cooperative bank in Germany in terms of membership. He pointed out that the banks that are the most susceptible to punishment interest are those whose business model relies on pure banking with individuals and businesses, and whose earnings cannot be improved by investment banking, risk-taking, gambling, market-rigging, and other big-bank activities that “have triggered the financial crisis in 2007.”
“So precisely those banks suffer the most that have never put the financial system at risk,” he said. “This is unfortunately not free of bitter irony….”
The door to punishment interest has been cracked open. It starts with large deposits and small rates. Then step by step, deposit amounts get smaller and punishment interest rates get larger until everyone gets smacked with it, and no money is save. It’s all part of the time-honored central-bank strategy to flog savers until their mood improves.
Germans don’t get to do this, but the lucky Swiss get to: they get to go to the polls and tell their central bank what to do about gold. A yes-vote will send shock waves through the gold market and other central banks. Read… What the Swiss Gold Referendum Means for Central Banks
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Negative interest rates on deposits and savings? I've never heard of anything sooo STUPID in my entire life. Welcome to Bizarro World!
and this is why the wealthy buy Renoir paintings. It only looks stupid until they buy it for 3.6m and sell it for 5.5 m
The argument that gold is not as good as paper money because it does not pay interest was weak to begin with... now interest is negative it is totally dead.
“Instead of lending your moolah to the bank… you’re financially better off hiding it in the basement.”
You ever try to hide $500,000 (or Euros) in your basement?
Furthermore, you need to factor in the government’s guarantee of deposit accounts. (I’m assuming they have such in Germany.) By this arrangement, if a bank fails, everything over $250,000 (in American banks) is lost. Large depositors have been aware of this for decades, and, accordingly, so-called zero-balance accounts were invented. By this device, large depositors (wealthy individuals and companies) swept everything into US Treasuries at the end of every day to avoid the possibility of losing their balance by a seizure of the bank overnight.
The problem soon arose that there weren’t enough Treasuries to meet demand from these zero-balance accounts (which go by several names).
This is what fueled the demand for Mortgage Backed Securities, which soon became the number one alternative for Treasuries – on a world-wide basis. Then, the MBS fraud collapsed; the Federal Reserve then bought these busted papers. To the extent they lose face value, they become collateralized by a piece of paper listed on the asset statement of the Fed as “gold certificate”, which is collateralized by another piece of paper possessed by the US Treasury and named, “gold and gold receivables”; which should tell you that part, most of none of the gold is held at Fort Knox. Ah, there is so much more to this story…
Well somebody's got to pay for Jeurgen's hookers and blow....
That is incredible. Criminalizing metals seems the next insane step, no one can be left on stable footing. Germans have seen this all before too, unbelievable.
If other banks follow... I predict a tsunami of currency flooding out of Germany and into hard assets and Swiss banks. Especially if the Swiss vote to take their gold back.
Sadly, the economic collapse of Germany and Japan will set up the conditions for another world war... ie, enraged people who have been screwed like a lag bolt.
“A logical follow-up of 100% Inheritance Taxes" is just one of the many severe and unintended effects of a general NIRP in Europe and the US, according to Andre Willers in Unintended Consequences of Negative Interest Rates. Reason #4 of his 14 conseqences is religious and includes capital flight...
“Religious consequences : Muslim Sharia or Christian Fundamentalist does not make any differentiation between negative or positive interest . Both are banned . A general negative interest regime in Europe and the US will result in a huge expansion of Sharia banking , and a resurgence of Christian Fundamentalist banking on a similar model . A quick calculation shows the scope : Estimated global capital = accumulation of reserves of GDP over a generation of 21 years = $100Tr x 21 x.33 = $700 Tr Capital flight of even 1% means about $70 Tr per year . It dwarfs QE . It will make up nicely for dwindling oil reserves in Islamic countries .”
As for consequence #5, i.e., insurance, Willers says “This will be the industry most affected . The whole industry is simply a promise to pay . If it can’t , then it will collapse . Or , more likely , move capital elsewhere . “
How Sharia banking works... supposedly... without charging "interest". Of special interest is how Sharia deals with fiat currency. ;-D
http://michaelepicray.com/2011/10/23/lybia-and-sharia-financing/
US dollars are the safe haven - as unpopular as this sounds
gold / silver tanking faster - not a safe haven
short term USD debt instruments - nothing more than six months - safest place right now
When the SHTF all those millions you or others have in the bank will be worthless. Only the physical bullion will be a means of exchange then. Buy low/sell high.
Bitcoin Last Price $344
Once again, the news looks like something from the National Onion; you have to admit it's entertaining.
I took all my money out of the bank and maxed out my credit cards... HAHAH!
You joke but when the big one is imminent, THIS IS the right strategy...
It is the right strategy until they create debtors prisons.
Already have them for some kinds of debt.
I'm trying to identify the financial objectives I would have for that type of strategy to work. Not coming up with anything right now.
ECB President Mario Draghi's last move towards more QE is no more than stupidity on steroids, even words like misdirected and boneheaded do it a disservice. This is more proof that the Euro-zone is in big trouble, both the union and the flawed currency is again begging to crumble.
One is forced to wonder if Japan and the Yen will crash first considering how each day Japan slides closer to the economic abyss or whether the Euro will lead the way into the wastebasket. Draghi has helped the countries of Europe kick the can down the road but this only delays the failure on the Euro. More on how the Euro-zone has failed to make any real reforms in the article below.
http://brucewilds.blogspot.com/2014/09/euro-zone-and-draghi-both-mired-i...
Draghi: “kicking the can down the road” to Hell. Good post; Europeans were forced on board this devil train and they’d better jump - before it’s too late.
They're not stupid, bone-headed, or "failing to make reforms". They know exactly what they're doing and the consequences.
Gotta pay for the opportunity to have your deposits bailed in. Thanks.
OTOH, if you were trying to create a crash with multiple bank failures, this would be one way to do it. Then the nazis or whatever iteration of them they wanted to bring into power could come on in.
Gold going down. Deflation. Maybe. But, after wwii, one ounce of gold was traded for a city block in berlin. A city block. Or so I've been told. Think of the large breasted frau's serving you good german beer in your own private biergarten while you live off the rent of the rest of the block. Or, whatever you'd like.
It’s time for businesses to start their own banks, a la Walmart. And if the central crooks try to stop them with their laws of plunder, it is time for the businesses and the people to go around the law.
The Bank of Wal-Mart is open for business.
The Fiscal Times writes: “For this endeavor, Walmart has partnered with Green Dot Bank, best known for its prepaid cards. The new checking product, GoBank, will be sold exclusively at Walmart stores starting next month. After purchasing a $2.95 starter kit, anyone over 18 years old with proper ID can set up a “checkless” checking account within minutes, without needing to submit a credit report.
“The accounts are FDIC-insured, can be accessed by cell phone, and include mobile check depositing, online bill pay, personal budgeting tools, person-to-person money transfers to other GoBank customers, and a MasterCard debit card that can be used at over 42,000 in-network ATMs to withdraw cash.
- See more at: http://www.thefiscaltimes.com/Columns/2014/09/26/Walmart-s-Checking-Accounts-Controversial-Win-Consumers#sthash.n3p4tsKy.dpuf
OR:
Wal-Mart Really Wants To Be Your Bank, Retailer Launches Mobile Checking Account |Forbes |9/24/2014
http://www.forbes.com/sites/samanthasharf/2014/09/24/wal-mart-jumps-deeper-into-banking-with-new-mobile-checking-account/
For the actions of the Fed the reactions are coming; it's called push-back against the tryants.
All card transactions the processors and bankers take 3% for doing virtually nothing. I don't blame retailers for starting their own banks. The parasites have almost killed the host
In Walmart We Trust?
And it's gone!
Walmart just wants in on the banking business. They see that this is where the REAL money is made - it's not made by selling shit chinese trinkets to sheep.
Exactly.
And the main motive: it is getting tired of being cheated by the big banks and it wants to get away from them. I mean, if I could, I’d have a bank.
This will only speed up the demise of banks and the financial system. People will take their negative rate earning money to pay of positive paying debt so that means a shortening of the balancesheet of the bank, the individual and money/debt in circulation.
Those are the good creditors. The bad ones not being able to redeem debt will stick on the blancesheet of the bank. Crowd funding will take the role of the banks too.
It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward. When this happens we are at the end game.
At some point the return on loaning money is simply not worth the risk! Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.
The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.
http://brucewilds.blogspot.com/2014/06/the-economic-efficiency-of-credit...
I am a big time investor - just got 2 jars of better than bullion ham flavor, (Canned Ham doesn't have much fat) split peas of course, 2 fruit drying trays for my dehydrator, perennial fruits planted a few years back, not a lot, but enough, and high quality powdered white cheddar cheese.
Happy Halloween.
What he said. Could hardly be improved upon.
Funny. I thought that negative interest rates were good for gold. Well, gold???
If we repudiate debt and end usury, Negative Money might jump start velocity. but NOT negative interest rates with usury.
https://en.wikipedia.org/wiki/Silvio_Gesell
https://en.wikipedia.org/wiki/The_Natural_Economic_Order
Boy did you see the metals charts today? Obvioiusly, everything is fixed now; and there's no need for any gold or Silver; thank goodness, I was a little worried there for awhile. /sa. actually been worried since 1979; and all in in Silver this time around in 1998. More bargain metal for sale; temporarily.
"Good for gold"? As in selling your gold for more pieces of paper than you paid initially? Who in their right mind would trade their physical metal money for fiat notes issued by criminal sociopaths? An ounce of gold is an ounce of gold is an ounce of gold.............
Hmm how do encourage people to de-capitalize the banks as quickly as possible? Let's charge negative interest rates.
It only means one thing; these ECB "kingpins" are shitting in their pants.
The wrath of unintended consequences .
"Sheeple wear Wolfskin !"
See
https://www.academia.edu/9031355/The_Were-Sheeples_Almanac
http://andreswhy.blogspot.com/2014/10/were-sheeples-almanac.html
Bail in at a slower pace
That'll teach those EVIL hoarders of cash!
Strafzinsen = punitive interest
you're welcome
and Skat is a card game
Germans need to stop worshiping authority and start storing up gold, silver, bitcoin, paintings, stamps or whatever else will escape their lame and/or evil banking system.
As do the Japanese... and the rest of the world.
going to have a problem with stop worshipping authority thing; but a little more study on their part would probably help.
Technically, I don't think the proposition can be falsified by Reductio ad Absurdum; but it doesn't hold together as a logical statement. I think it's a kind of nonsequitur. There's no firm connection between what's proposed and what is supposed to be demonstrated. It certainly looks like naked desperation masquerading as some sort of reasoning.
"Trust us, we're the experts."
Stick that 0.25 loss into bitcoin
and turn it into 100% loss
Another completely anti-ZH perspective on NIRP is this: Draghi is lovingly telling the masses: 'do not store up your wealth in mere currency and derivatives of this inferior paper promise, use instead the very same thing that we here at the ECB use, gold. Notice we have 10,800 tons in the system. We use it you should too'.
At least that is what I reading into the latest moves by the ECB.