Danish and Swiss Banks to Charge Customers 0.75% Interest on Large Deposits

-edited

Last week, Denmark’s central bank cut its deposit rate to -0.75%. Banks will pass this on to large customers.

Please consider Denmark's Jyske Bank Lowers its Negative Rates on Deposits.

Jyske Bank said on Friday people with more than $111,100 in their bank accounts will be charged more for their deposits as it seeks to pass on some of the costs of recent rate cuts by the European and Danish central bank.

Jyske Bank, Denmark’s second-largest bank, said it would introduce a negative interest rate of 0.75% for all corporate deposits and for private clients depositing more than 750,000 Danish crowns ($111,100) from Dec 1.

Last week, Denmark’s central bank cut its key deposit rate to minus 0.75%, a record low among developed economies. “It is a lot of money and we have to pass on part of this bill to our customers,” he said. “I don’t hope that we will have to go lower but I don’t dare to promise it.”.

Denmark’s largest bank, Danske Bank has said it has no plans to introduce negative interest rates on deposits. Switzerland’s UBS has said it will impose a negative rate of 0.75% on clients who deposit more than 2 million Swiss francs ($2 million). ($1 = 6.7559 Danish crowns)

Simple Question

If you live in Denmark and have a bank account in excess of $100,000 or so, why would you have it at Jyske Bank which charges 0.75% while Danske Bank, the country's largest bank doesn't?

Possibilities

  1. There is something seriously wrong at Danske Bank and people don't trust it.
  2. Danske Bank welcomes deposits and can do something with the money. But if so, at what risk?

Any Danish readers care to answer?

Perhaps we have an answer from Bloomberg in the following discussion.

Jyske Shares Jump on Interest Rate Charge

Bloomberg reports Negative Rates Just Got Real for a Record Group of Bank Clients

Shares in Jyske closed more than 5% higher marking their best performance since December 2017, as investors calculated the impact that the new policy will have on the bank’s net interest income.

Jyske has “set the ball rolling,” said Per Hansen, an investment economist at broker Nordnet.

Other Bank Comments

  • A Danske Bank spokesman said, “We cannot comment on competitors’ prices and have nothing new to add on the matter.” The bank has previously promised to protect retail depositors from negative rates.
  • Nordea Bank Abp spokeswoman Tenna Schoer said the Danish unit is “monitoring the situation closely.” The bank’s CEO Frank Vang-Jensen has previously said Nordea can’t rule out imposing negative rates on retail depositors.
  • Sydbank, which has already said it will impose negative rates on retail depositors with over 7.5 million kroner, is monitoring the situation. “We have taken note of developments in the market and have seen that interest rates have fallen further,” said Jan Svarre, deputy CEO at the bank. “We’ll investigate our options and where the limit should be, and then we will return and notify our customers directly.”

Per Hansen commented "imposing such a policy is politically difficult for Danske, given its recent history of financial scandals. The bank is being investigated for a $220 billion money-laundering affair, and has been reported to the police for a separate case in which it overcharged retail investors."

Bonus Questions

  1. What happens to Danske if all the Danish money flees to Danske?
  2. What happens if everybody takes their money and runs?

Regardless of the answers, I expect to see an increased demand for gold, the US dollar, US treasuries, and safes as these pass-through policies escalate.

Please recall what happened in Japan on far less negative rates: Safes Sold Out in Japan: Customers Hoard Cash in Response to Negative Rates

A week ago I commented on the ECB's Counterproductive QE: Whatever It Takes Morphs Into "As Long As It Takes"

European banks are getting killed on these policies.

Ball is Rolling

Jyske has “set the ball rolling,” said Per Hansen.

Yes, and if Central Banks stick with their "as long as it takes" approach, the results are likely to be disastrous.

Mike "Mish" Shedlock

Comments (60)
No. 1-21
2banana
2banana

As the world decends into madness, the common man looks for answers.

"Regardless of the answers, I expect to see an increased demand for gold, the US dollar, US treasuries, and safes as these pass-through policies."

shamrock
shamrock

Is there enough physical currency for large numbers of people to take cash and put it in a safe?

Mish
Mish

Editor

"Is there enough physical currency for large numbers of people to take cash and put it in a safe?"

Excellent question: Almost certainly not

Country Bob
Country Bob

(1) I know there are hedge funds already running simulations and placing bets on when Draghi / Lagarde's "long as it takes" is going to run face first into German bank limits. Those limits have been challenged and upheld by the German high court. Depending on various assumptions, the ECB has 12 months or less. After that, it will stop.

I don't know if Mish got hold of one of the research reports that big banks are doing on this for their hedge fund clients. There are several floating around. And the funds are running in house simulations too. Remember when the Bank of England promised to do "whatever it takes" (different words, same sentiment) to hold the GBP with the ECU (predecessor of the Euro)? There is a LOT of money to be made correctly guessing when this latest central bank FUBAR will come apart.

(2) The German press is defying calls from Berlin not to publicize what the man on the street is calling the ECB negative rate policy: diebstahlsraten (that is the PG label, there are others that are really nasty). The German savers are running out of patience

(3) The Greeks have a long history of putting their savings into anything other than Drachma. Some went to D-marks, some to Swiss francs, some to other places. The southern EU countries have lots of experience hiding assets from authorities, and will make a mint teaching the rest of the EU how to get around the ECB's foolishness. They will avoid the ECB's confiscatory policy, but the price is slower economic growth

In short -- the ECB's policy won't last long, no matter what the politicians say

Mish
Mish

Editor

I just added this comment

Please recall what happened in Japan on far less negative rates: Safes Sold Out in Japan: Customers Hoard Cash in Response to Negative Rates

Harry-Ireland
Harry-Ireland

How about this one; In Ireland, certain Credit Unions have implemented a savingscap. It varies from €15.000 to €30.000. There's 0,00 interest on these savingsaccounts and it mostly serves as collateral against loans.

Country Bob
Country Bob

Mish mentioned the run on safes in Japan. Those safes can store Yen, but also USD (the $100 bill now has more circulation than $1, and much of that is outside of the USA).

Imagine how much brain power in Japan is being used to think up ways to avoid onerous financial fees? Japan is a very orderly society, with lots of respect for elders and doing things by the rules (most of the time).

Despite Japan's willingness to obey, authorities couldn't keep interest rates much below -50bp. Each time they do, the economy grinds to a halt, the ruling coalition collapses, and they are forced to do something else. How many PMs and how many fiscal shock-and-awe plans has Japan gone thru since 1990? Too many to count.

The French are arguably among the more civilized in Europe, and they have a history of putting their monarchs in guillotines. The other countries have a history of being not nearly as nice.

Best case scenario, Europe's rates will pull back to -50bp... and a lot of brain power will get diverted from productive uses to circumventing dumb rules. The black market will thrive.

Bet on the black market in Europe. Bet against the ECB

abend237-04
abend237-04

This is a bet that a bank customer smart enough to amass $100,000 or more in savings is paradoxically too stupid to realize that they can rent a safe deposit box for less than $750 per year in which to store it.

Webej
Webej

I could imagine deposit rates at the CB work out very differently for various banks, depending on the composition of their balance sheet and possibilities to circumvent parking too much cash at the CB. Probably a very technical and elaborate explanation for why different banks are behaving in different ways.

Most banks in negative rate countries have not yet hit ordinary consumers with negative interest on their deposits, at least, not the sort that most consumers hold.

The idea that you are getting paid to borrow money stirs the imagination, but I am not hearing about any people actually getting such loans, except in some Nordic countries on mortages (which are collateralized by the house, of course). There is a lot of debt trading with a negative YTM, but there are no negative coupons, and most bonds still pay some nominal interest coupons, even if the prices imply a negative return if held to maturity. I don't see a lot of evidence for the fixed income part of the bond markets reversing and actual cash flows operating in reverse.

Tengen
Tengen

I suppose this is good news. Negative deposit rates not only shows even the dumbest among us that something is seriously amiss, it hastens the collapse of the whole banking ponzi by destroying confidence once negative rates become commonplace.

I always thought safe-cracking would be a cool profession. If I ever become one myself, I'll be sure to keep pictures of Greenspan, Bernanke, and Yellen in my tool bag for inspiration, right next to my drill, borescope, and plasma cutters!

Casual_Observer
Casual_Observer

This is just another symptom of the zombie economy we have. If growth were healthy then negative rates would have never happen.

Jackula
Jackula

Borrowing from Mish, a musical tribute: https://www.youtube.com/watch?v=JSUIQgEVDM4

caradoc-again
caradoc-again

Next is to make it onerous to withdraw large sums if you are a wealthy non-corportate customer. Full chapter and verse will be needed on the intended use of the withdrawn capital.

caradoc-again
caradoc-again

Some of the stress is down to Eurk vs Kr. How long before Denmark is forced to join the Euro?

Forget the Maastricht opt-out, one way or another that can be worked around.

Sechel
Sechel

it costs money to maintain a bank account. banks normally take their cut by not paying as much interest on deposits and earn a spread. they can't do that now. what's so shocking?

thimk
thimk

here is a little "ditty" from Jack and Diane : somewhat relevant to article . japan is still pretty much a cash based society .

DK-vikinginvestor
DK-vikinginvestor

Postcard from Denmark. In Jyske Bank everything is up for negotiation. List rates may be negative but clients can negotiate a better deal. Danske Bank is largest bank and competitor but hurt on reputation with money laundering scandal of 150 bn USD. However we Danes are also enjoying mortgages with negative nominal rates and effective rates close to zero. So house prices are stable despite tightening of credit standards.

Country Bob
Country Bob

The San Fransisco economic miracle -- taking a money losing companies IPO and ignoring the rats, homelessness, plague, hepatitis, and garbage piles --- seems to be breaking down. WeWork is exposed as a giant liability, Uber/Lyft lose money and don't even pay enough to cover wear&tear, and Tesla just sent a heavily modified electric car to break down on the Nurburg Ring (it was powered by a diesel engine driving the generator for the battery!). Turns out the free sh!t fantasy has a few holes in implementation.

Japan just proposed their 999999th fiscal stimulus plan, and this time they are really really serious. And stop asking about the Fukashima nuclear plant, OK?

The ECB started its latest ponzi scheme disguised as stimulus, and this Jyske Bank news has spawned a black market cottage industry in avoiding bank fees. None of the EU anchor countries look like they can keep themselves afloat never mind subsidize Brussels.

The US military has achieved yet another glorious victory in whichever hell hole, but rebel groups in those hell holes continue to operate with impunity even under martial law.

China's army could squash the protests in Hong Kong in seconds if ordered to do so, but even the egotistical communists know that doing so would shut down Hong Kong, Shanghai and Tainjin in seconds -- devastating China's "growth miracle" (aka capitalist oasis within communist sh!t hole).

.

With many victories like these, the central planners don't need a defeat

George_Phillies
George_Phillies

Someone familiar with Danish adn Swedish or German or wherever law might comment: How legal is it to take my money out of this strange banking situation and deposit it in a bank outside the country? I suppose there are foreign exchange cost issues.

oldereb
oldereb

Is that 0.75% interest charge annually, monthly, weekly, or daily ?

Cocoa
Cocoa

Wish, keep in mind at least in Switzerland, currency notes EXPIRE after a few years. There are open periods where u show up and trade your notes into a bank for conversion. So hoarding cash could be a bad tactic, especially if your bank note cannot be used in transactions AND the bank is in charge of allowing a conversion