Despite pumping in more than 1 trillion into the economies of the EU, the lack of risk takers is creating multiple fractures and is fueling the rise of euro-sceptics in Germany.
According to sources who are familiar with the matter at hand, one of Germany’s biggest lenders, Commerzbank is examining the possibility of hoarding billions of euros in vaults rather than paying a penalty for parking it at the European Central Bank.
If this were to happen, it would be a sign of a major protest against the ECB’s ultra-low rate policy, which incidentally has come under fire from German finance minister, Wolfgang Schaeuble.
As per two officials who preferred the cover of anonymity due to the sensitiveness of the issue and since they were not authorised to comment to the media, it has not yet been decided to take this route. However, the matter has been discussed at length with German authorities.
As per a spokesman for Commerzbank, it was not storing cash “at the moment”. He however declined to comment whether it will do so in the future.
The ECB declined to comment.
This development comes in the wake of the ECB’s move to charge a parking fee for deposits made by banks leading to growing frustration by European lenders. Commerzbank is currently examining alternatives to storing its funds elsewhere.
If it were to do so, it would be the first European bank to take a step and if other lenders were to follow, ECB’s policy of charging a fee for storing would become infective and redundant.
The ECB’s move is designed to encourage banks to lend more money rather than park it. Towards this end, the central bank has imposed a charge of 4 euros, annually, on every 1,000 euros ($1,137) deposited with the bank.
A few banks have however said, given the dim global economic scenario, the scope for giving loans is very limited, thus leaving them with no option but to hoard their cash.
Last month, Commerzbank said, the ECB’s charge had eaten into its earnings. The German government has a 16% stake in the bank following a bailout during the 2008 financial crisis.
Giving a geo-political twist to the scenario, German Finance Minister Schaeuble had said in April that the ECB’s low interest rate policy is fuelling a rise in Euroscepticism in Germany, with voters flocking to right-wing Alternative in Germany during state elections. He has termed the issue as an “extraordinary problems” for German banks and pensioners.
As for the ECB, it has pumped in more than 1 trillion euros in fresh money into the pan European economy and most of this fund has trickled down to prosperous Germany. Since then, the cash reserves of German banks at its end has increased dramatically. Deposits by European banks at the ECB stand at more than 850 billion euros, at considerable costs to the bank. The problem is that despite the measures taken by the ECB, the demand for loans has not spiked in regions where the economies are in the doldrums.
Although there is no limit against holding a theoretical unlimited funds by banks, there are hidden costs such as insurance against fire and theft, which needs to be taken into account.
Furthermore, storing such large amounts centrally poses also a logistical challenge: 2 billion euros in denominations of 200 euro notes will have a weight of nearly 11 tonnes.
In addition to this, the cost of moving large sums of monies in secure transportation had prompted Germany’s regional saving banks to not consider such a move.
($1 = 0.8791 euros)
Categories: Economy & Finance, Strategy
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