Last weekend, when we reported that Germany's Raiffeisenbank Gmund am Tegernsee - a community bank in southern Germany - said it would start charging retail clients a fee of 0.4% on deposits of more than €100,000 we said that "now that a German banks has finally breached the retail depositor NIRP barrier, expect many more banks to follow."
Not even a week later, not one but two large banks have done just that.
Overnight, the Irish Times reported that Bank of Ireland is set to become the first domestic financial institution to pass on the ECB's negative rates to customers for placing their money on deposit with the bank. The newspaper has learned that Bank of Ireland, which is 14% owned by the State, has informed its large corporate and institutional customers that it plans to charge them a negative rate of -0.1% for deposits of €10 million or more starting in October.
As with all other banks, initially only a small group of customers will be affected by the charge and while the bank has indicated that it has no plans to levy a negative interest rate on either personal or SME customers, increasingly more banks are lowering the threshold of eligibility (for example, the German community bank is now charging those with only €100,000 in the bank: low long until the minimum required balance is €10,000 or lower). However, as the Irish Times notes, this will be the first time an Irish-owned institution has applied a negative interest rate on deposits, breaking the long-held tradition of a bank paying customers to hold their money. A spokesman for Bank of Ireland said its policy was not to comment on its pricing but “we keep all our rates under review”.
Ulster Bank, which is owned by UK lender Royal Bank of Scotland, has already quietly introduced negative interest rates for a small number of large corporate clients. Ulster Bank has products priced off the back of Euribor, a European interbank lending rate, which is at an all-time low and turned negative last year. This charge by the bank does not apply to SMEs or personal customers.
Additionally, as Bloomberg reports, Royal Bank of Scotland, Britain’s largest taxpayer-owned lender, said some of its biggest trading clients must pay interest on collateral as a consequence of low central bank interest rates. Some of the bank’s institutional clients will need to pay interest on funds pledged as collateral when trading futures contracts, the bank said in an e-mailed statement on Friday. The changes for sterling and euro futures and options trading will probably affect about 60 large clients, a person with knowledge of the matter said earlier Friday.
“Due to the sustained low interest rate environment, RBS will now be passing the cost of holding such deposits onto a limited number of our institutional clients,” the bank said in the statement. RBS said it had previously applied a zero percent floor to the overnight rate charged for collateral required by clearinghouses for future traders.
As the FT adds, this is the first sign the Bank of England’s decision to cut rates to historic lows is forcing lenders to collect negative interest from deposit holders.
Ironically, unlike Europe, the UK's rates are (still) positive, even though the BOE recently cut the interest rate to an all time low of 0.25%, as it unveiled it would resume monetizing government and corporate bonds. It may soon cut rates to negative.
And while the RBS move affects only a subset of business customers, some lenders in Europe, where both the European Central Bank and the Swiss National Bank have kept interest rates below zero for months, have been charging a wider array of customers to hold their deposits.
“What you’re seeing is there have been a few banks in Germany and a couple in Switzerland which have started to charge for deposits; importantly, it’s to corporate customers, or very wealthy people,” said Andrew Lowe, an analyst at Berenberg, quoted by the FT. “You are likely to see the UK banks follow suit, in particular if rates fall further,” he added. “Everything that applies to Europe applies to UK banks as well.”
And, after a certain period of time passes, it will also apply to less than "very wealthy people."
The RBS charges would apply to clients who trade futures and options, and therefore hold cash on deposit as collateral. He said customers were being encouraged to put their cash into bonds instead to avoid the cost. “As you will be aware, there are a number of currencies which now attract negative overnight rates for deposits,” the letter from the bank said.
HSBC said last year it would start charging other banks for deposits held in currencies where negative interest rates apply. It confirmed on Friday that the policy would not change. Barclays also said it had no plans to apply negative rates.
As negative rates become increasingly part of the new normal, and as more depositors are swept up by the creeping confiscation of savings, we expect that the other part of the "cash trap" endgame, the actual elimination of large currency bills, will also soon accelerate, first in Europe where the ECB recently put an end to the printing of €500 bills, and soon after everywhere else.