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The Wrath of Draghi: Bailed-Out German Megabank Imposes “Negative Interest Rates”
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
Commerzbank, Germany’s second-largest bank, a toppling marvel of ingenuity during the Financial Crisis that was bailed out by ever dutiful if unenthusiastic taxpayers, will now reward these very folks with what Germans have come to look forward to: the Wrath of Draghi.
It started with Deutsche Skatbank, a division of VR-Bank Altenburger Land. The small bank was the trial balloon in imposing the Wrath of Draghi on savers and businesses. Effective November 1, those with over €500,000 on deposit earn a “negative interest rate” of 0.25%. In less euphemistic terms, they get to pay 0.25% per year on those deposits for the privilege of giving their money to the bank.
“Punishment interest” is what Germans call this with Teutonic precision.
The ECB came up with it. In June, it started charging a “negative interest rate” of 0.1% on reserves. In September, it doubled that rate to 0.2%.
“There will be no direct impact on your savings,” the ECB announced at the time. “Only banks that deposit money in certain accounts at the ECB have to pay.” It even asked rhetorically: “But why punish savers and reward borrowers?” And it added helpfully: “This behavior is not specific to the ECB; it applies to all central banks” [here's part one of the saga... The Wrath of Draghi: First German Bank Hits Savers with ‘Negative Interest Rates’].
On November 6, as rumors were swirling that even the largest banks would inflict punishment interest on their customers, Commerzbank CFO Stephan Engels came out swinging in an interview to assuage these fears. He said point blank, “We cannot imagine negative interest rates on deposits of our individual and business customers.”
On November 11, it was Martin Zielke, member of the Commerzbank’s Board of Managing Directors, who recited the same corporate script in his interview with Focus: “We cannot imagine at the moment that private customers pay a negative interest rate on their deposits with us.”
At the moment? So, “you cannot definitely exclude a negative interest rate?” he was asked.
“I cannot imagine it,” he said.
Eight days later, Commerzbank confirmed that it too would inflict punishment interest on “some large corporate customers with high balances as well as on large corporations and institutional investors.” It used the term “deposit charge” instead of “punishment interest.” December would be the propitious month. And thus, the first large bank in the Eurozone is starting to inflict the Wrath of Draghi on its customers.
At this point, Commerzbank doesn’t have a flat punishment rate. It wants to negotiate the rate with each affected customer individually, it said. But private individuals, business customers, and medium-sized corporate customers would “categorically” not be affected, the bank said. Or at least, it cannot imagine it.
Deutsche Bank, Germany’s largest and most scandal-infested bank, is also moving in that direction, according to an unnamed source of the Wall Street Journal Deutschland. However, a spokesman non-denied this, saying carefully that the bank “at this time” was not planning “to introduce deposit fees in the general banking business.”
At this time….
Some US banks, including Bank of New York Mellon, Goldman Sachs, JP Morgan Chase, along with the Swiss bank Credit Suisse and British bank HSBC have also told some clients that punishment interest – they probably didn’t use that term – was going to hit their euro deposits.
The writing has been on the wall. On November 5, another banker gave an interview, the most revealing yet. Asoka Wöhrmann, Chief Investment Officer at Deutsche Bank’s asset management division, told the Welt that people “should finally stop saving more and more, and think about spending the money.”
The Draghi solution: flog savers until their mood improves.
He explained how German savers were getting screwed by interest rates that had been pushed below inflation. So, instead of trying to save for retirement or illness or periods of joblessness, they should just blow the money now.
But wait, even if inflation eats that money ever so slowly, “at least the number in their savings account doesn’t get smaller, and that’s enough for many people,” the Welt pointed out.
“That’s about to change,” Wöhrmann said, and you could almost see him grin.
Banks would sooner or later pass the ECB’s “punishment interest” – he actually used that term – on to their customers. So far, only business customers are getting hit, he said. “But soon, it will hit individual customers.”
And it would good for them: it “should trigger the aha-effect,” he said. “It will hopefully become clear that it’s not worth it to leave your money lying around at the bank. When every individual spends money, it helps all.”
And with the money they can’t spend despite their efforts, they should take “greater risks” and invest it “primarily in stocks….”
Just when the DAX, which has been soaring for years despite a so-so economy, pierced the 10,000-mark for the first time last summer. After having missed the phenomenal 160% run-up since February 2009, and after having missed the peak in July, German savers are now suddenly told by none other than the most scandal-infested bank in Germany, if not the world, to plow their dear savings into stocks.
To stop stocks from sliding further? Turns out, since that peak in July, they’d tumbled over 14% by mid-October and are still down 6%. But if all savers follow Wöhrmann’s ingenious and well-meaning advice, they could perhaps drive stocks to new highs so that the smart money can get out at the top.
This is the new strategy of the ECB: to use the banks under its umbrella to confiscate in bits and pieces – now that inflation is too low to accomplish this mission with adequate speed – the wealth and liquidity that prudent people and businesses have painstakingly accumulated. Their only escape: the fangs of risky assets in an environment where nearly all assets are overpriced.
Punishment interest started with tiny Skatbank. Now it’s spreading to the largest banks in Germany. Soon all banks will do it, and customers can’t choose one bank over another to escape it; the ECB doesn’t want competition on this issue. Soon the trigger levels will come down, until everyone gets hit. And if Draghi has his way, the ECB, seeing how successful money confiscation really is, will raise the punishment interest rate further. After all, as the ECB and Deutsche Bank pointed out, mauling savers and businesses is in some magic way good for them. They should just enjoy it.
And the risks? There’s some new thinking about the markets in this crummy global economy where nearly all assets are overvalued. Read… It’s Official: Party Now, Apocalypse Later
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In this upside down banking world, will I now have to buy them a toaster when I decide to close my account?
Buy PMs.
Exactly what I did.
The central bankers (aka The Red Shield gang) were retarded and now have Alzheimer's. A mind is a terrible thing to lose.
What exactly is the point? Heck even just holding cash at home is better than losing your money to the bank. Isn't that just asking for bank runs? I wish this Ponzi would just go ahead and bust already. It's been 6 long crazy years.
Well, in order for you to learn all about EUPHEMISMS, here is the correct translation of Commerzbank's negative interest rates. It's called POSITIVE BALANCE FEE! You cant make that up...
Share: Cite / link: eu·phe·mism (yf-mzm)n.
The act or an example of substituting a mild, indirect, or vague term for one considered harsh, blunt, or offensive: "Euphemisms such as 'slumber room' . . . abound in the funeral business" (Jessica Mitford). [Greek euphmismos, from euphmizein, to use auspicious words, from euphmi, use of auspicious words : eu-, eu- + phm, speech; see bh-2 in Indo-European roots.] euphe·mist n. euphe·mistic (-mstk) adj. euphe·misti·cal·ly adv.
T
Germany is to the Euro as gold was to the gold standard. Once Germany allows a move to QEs then that credible backing to the Euro is gone......confidence in the Euro lost and very quick slide aka Japan....
+1 Kina, this could be the black swan event for the EU. [nice avatar btw]
The whole thing feeds off the german taxpayers tit, so when germany gets 'mastitis' the Eu is over.
Skatbank, Those Germans are into some crazy stuff.
I knew this would take hold and become popular. Overnight deposit rates shoved straight onto the customer (plus a little extra off the top, natch), how could the banks stop themselves? Next up, people queuing up around the block to withdraw their fictional reserves, and some pretty painful memories resurfacing.
Only Austrian economics can save them now!
Germany should find a new leader before the depression hits this time.
Any Ziocon dupe will do.
I'm long pitchforks, torches, and rope.
ECB's lobby system with the “emperor” at the top
http://failedevolution.blogspot.gr/2014/11/ecbs-lobby-system-with-empero...
With negative interest rates, gold in effect pays interest.
We NIRP'd some folks...
I should open a safe deposit box service next the Commerzbank.
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. Sadly Germany is asked to continue paying for countries that won't do the right thing.
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...
Let's just go ahead and go all the way -
From now on - every child male and felmale born in any month with an "R" must become a sex slave for bankers and the political class - from the ages of 3-17.
Any "terrorist" who complains will be raped, killed, chopped up and stuffed in a suitcase by Bank of America.
"To stop stocks from sliding further? Turns out, since that peak in July, they’d tumbled over 14% by mid-October and are still down 6%. But if all savers follow Wöhrmann’s ingenious and well-meaning advice, they could perhaps drive stocks to new highs so that the smart money can get out at the top."
Yeah Baby!!!
Why, over on my side of the farm, back when I was a wee foal, I used to say: "...when I grow up: after being forced into overpriced stocks by a scheming central banker, I want to be a bag holder for Richy Rich and his Fed connected friends so they can get out at the top! Yeah! Yipee!
(/s - modeled after the little kids on that monster.com commercial: "...When I grow up I want to have a brown nose. I want to be a Yes man. Yes Woman! Yes Sir! Coming sir! Anything for a raise sir... ")
Let's just go ahead and go all the way -
From now on - every child male and felmale born in any month with an "R" must become a sex slave for bankers and the political class - from the ages of 3-17.
Any "terrorist" who complains will be raped, killed, chopped up and stuffed in a suitcase by Bank of America.
Let's just go ahead and go all the way -
From now on - every child male and felmale born in any month with an "R" must become a sex slave for bankers and the political class - from the ages of 3-17.
Any "terrorist" who complains will be raped, killed, chopped up and stuffed in a suitcase by Bank of America.
3 month German T-Bonds are "paying" (hahaha) -.093%.
http://www.investing.com/rates-bonds/germany-3-month-bond-yield
Endeavor to persevere..... https://www.youtube.com/watch?v=rsL6mKxtOlQ
Wolf:
For the 2nd time, I would suggest that the correct translation of "Strafzinsen" is "punitive interest"
You're welcome.
Teutonic precision indeed.
The message I hear, loud and clear, is 'hold your savings in another way....and I also hear the word...gold.
Clearly for large companies over short periods this is not practical and indeed companies do not generally need savings, they spend or distribute profits.
For individuals though, long term saving in gold makes more and more sense.
They have been strafing the lifeboats (PMs) for years, and are now punishing holders of cash. Hear them now -- the only places you are authorized to hold any excess wealth are
1) Equities
2) Real estate
3) Bonds (sovereign or private, doesn't matter)
ANYONE with excess currency (Dollar, Euro, Yen, Sterling, Renminbi, etal) or money (Au/Ag) will be punished to the fullest extent of the law.
The bastards still getcha on the real estate....
I've never had the tax assessor send me a notice of property tax reduction...EVER
You now have to pay for the priviledge of having your money at risk of being stolen whilst inside the bank!
Stop complaining Germany - or Bank of America will sen over some bankers to chop up your women and stuff them in suitcases -
http://www.dailymail.co.uk/news/article-2818968/Banker-booked-prostitute...
Now you see why farsighted citizens voted with their feet since 2008
You are about 3 times richer than you think .
See
https://www.academia.edu/9405720/The_Economics_of_Disrespect_Update_I
or
http://andreswhy.blogspot.com/2014/11/the-economics-of-disrespect-update...
Probably time for everyone to have a refresher
Becoming a serfA free man usually became a serf because he owed a large debt. He would make an agreement with the Lord of the land. The Lord would keep him safe, give money for his debt, and give him land to work on, and he would do work for the Lord. All his children would become serfs.
The serf's dutiesThe usual serf "paid" his fees and taxes by working for the lord 5 or 6 days a week. At different times in the year he would do different things. A serf could plough his lord's fields, harvest crops, dig ditches, or repair fences. The rest of his time he could take care of his own fields, crops and animals.
The big problem for a serf was that he had to do the work for the Lord before he could do his own work. When his Lord’s crops needed to be harvested, his needed to be harvested, too. The Lord would give them very good food when they worked for him.
The serfs also had to pay taxes and fees. The Lord decided how much taxes they would pay from how much land the serf had, usually 1/3 of their value. They had to pay fees when they got married, had a baby, or there was a war. Money was not very common then, so usually they paid by giving food instead of money.
There were strange tests to decide if something was good enough to be given for taxes. A chicken, for example, had to be able to jump over a fence. That showed that the chicken was young and healthy.
Moral of the story:
Stack acres as well as phyz
and healthy chickens
Feed ground-up green monkeys and fruit bats to your 'tax chickens' just before handing them over to your landlord.
Let's see: should I deposit my savings in a bank and pay them for the priviledge of exposing myself to their fractional reserve, leveraged madness or . . . . should i buy some precious metal?
Hello Bank runs. This is like drilling a hole in the bottom of your boat so they'll be less water in the ocean.
1000++++ that was hilarious
For now one can still use hard currency Admittedly large deposit holders will need a large safe or vault and security, but it is an option. And if someone says, "but having a vault and security system is expensive", maybe the banks have a valid business model.
Or, just use the cash to pay down debts. So, if I am a corporation I could take the cash and pay down a LOC I used to buy back stock. That's not going to have the intended consequence Draghi wants, but then his strategy has been a complete epic failure from day one anyways.
Good luck trying to hoard all that cash. I'm sure the local police department would love to assume it is drug money and confiscate it to pay for lots of new toys. Also, go ahead and spend more than 10K in cash at a car dealership or on a real estate purchase. The IRS would love to pay you a visit and look through all the details of where that cash came from.
Basically, if you don't use a bank; you are a crook and deserve to have your cash taken from you.
That's only true in the USA (so far!), NOT in Germany!
You are correct except for real estate. In many states real estate is exempt from anti-money laudering laws. This is one of the reasons lots of foreign nationals are buying up US real estate.
You may want to verify that. Check civil forfeiture cases such as the Motel Caswell in Tewksbury, MA. Very little is beyond their reach.
"Deposit fees" = oxymoron.
Debt serfdom (slavery) with a bow and glitter.
What bow and glitter?
They're making the slaves pay for their own chains...
I'm sure in hopes that the recipient institutions that are affected by these measures make a mass exodus of cash, creating the Mother of all Bank runs.
ok, you sparsam german volk.
start buying gold.
start buying silver.
hallo?
The floggings will continue until morale improves.....
An oldie but goodie was the line about gold not paying any interest. Now we get to say "at least gold just sits there and doesn't charge you interest."
And has no risk of being 'bailed-in.'