By Nicholas Comfort, Stephan Kahl, and Birgit Jennen
Most Germans live by the credo that saving is a virtue, but the ECB’s negative interest rates risk making a mockery of the national obsession, prompting politicians to seek ways to insulate thrifty citizens and keep the burden on the country’s beleaguered banks.
Finance Minister Olaf Scholz says he’ll look into whether it’s possible to prevent German banks from charging most retail-banking clients for their savings deposits after such a measure was proposed by the leader of Bavaria. Lenders have rejected the idea, saying bans don’t ultimately help clients and could even destabilise financial markets.
Germany’s overcrowded banking industry has long contended with sub-par profitability, but after five years of negative rates, lenders are running out of ways to offset the hit to earnings. While the ECB wants to spur people to invest, there’s concern that the banks will face mass withdrawals if they introduce negative interest rates for retail clients.
With the country gearing up for regional elections next month, the ECB is an easy target for a country known for its risk-averse attitude to money and its habit of hoarding savings in checking accounts. At €2.35 trillion, no other country in the eurozone has a larger pile of retail deposits.
Germany’s citizens also save far more of their disposable income than most other Europeans — its savings rate was around 10% in 2017, almost twice the eurozone’s average. On average, Germans held more than 40% of their financial assets in the form of bank deposits in 2018.
Negative rates, which mean deposits decline over time rather than increase, “would be bad for all savers,” said Jurgen Dengel, a 40-year-old civil servant from Bonn. If negative rates were introduced at his bank, he would consider withdrawing his money and using it to build a home —even if that meant going into debt.
“This is a total political football,” said Klaus Fleischer, a professor specialising in finance at the Munich University of Applied Sciences.
Not everyone’s in favour of outlawing deposit charges, though. “A ban on negative rates might be attractive for savers, but then we have to also think of how we’d support unprofitable but systemically-relevant banks,” said Ingrid Arndt-Brauer, a member of the Social Democratic Party, Angela Merkel’s junior coalition partner. The ECB itself is considering ways to relieve the burden of negative rates on banks.
Negative rates are a double whammy for lenders. Eurozone banks pay over €7bn a year to deposit funds overnight with their central bank, while at the same time their income from lending is eroded. That has helped push the share prices of many European lenders to record lows and has left Germany’s Deutsche Bank and Commerzbank reeling from falling revenue and shrinking profitability.
Some other banks across Europe already pass on negative rates to corporate clients and aren’t ruling out doing the same to retail customers. In Germany, the issue has exploded onto the front pages of the country’s largest tabloid, with Bavarian prime minister Markus Soeder even calling for a ban on deposits of up to €100,000.
“These suggestions show how far the undesired side effects of the ECB’s negative rates stretch,” Germany’s banking lobby said in a statement, referring to the central bank’s deposit rate of minus 0.4%. Still, banks cannot ignore the market as a whole when setting their conditions — even when rates fall below zero, the group said.
Some German retail banks already charge customers for holding as little as €100,000 in deposit accounts, though they have yet to extend the policy to the bulk of their customers.