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Banks look for cheap way to store cash piles as rates go negative
By Claire Jones and James Shotter
Financial Times, London
Tuesday, August 16, 2016
FRANKFURT, Germany -- The idea of keeping piles of cash in high security vaults may sound like something from an old movie plot, but some banks and insurers have recently started considering the idea as interest rates sink below zero across much of Europe.
Europe's highways are not yet jammed with heavily guarded trucks transporting money to top-secret locations, but if it becomes financially sensible for banks to hoard cash as rates are cut even further, the practice could undermine central banks’ ability to use negative rates to boost growth.
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After the European Central Bank's most recent rate cut in March, private-sector banks are paying what amounts to an annual levy of 0.4 percent on most of the funds they keep at the eurozone's 19 national central banks. This policy, which has cost banks around E2.64 billion since ECB rates became negative in 2014, is intended to spark economic growth by giving banks the incentive to lend money to businesses instead of holding on to it.
European central bankers say they could cut rates again should economic conditions worsen, but private bankers and insurers are already thinking of creative ways to avoid those charges altogether.
One way is by turning the electronic money they keep at central banks into cold, hard cash. Munich Re has experimented successfully with storing a double-digit million sum of euros in cash at what the insurer describes as a manageable cost. A few other German banks, including Commerzbank, the country's second-biggest lender, have also considered taking the step. But when a Swiss pension fund attempted to withdraw a large sum of money from its bank in order to store it in a vault, the bank refused to provide the cash, according to local media reports. ...
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