5 ms·

Swiss alternative bank breaks negative rates taboo

43 points by randomname2 11y ago

AnimalMuppet 11y ago
That seems like just asking your depositors to put their money somewhere else...
- Asbostos 11y ago
  I think that's exactly what they're doing. Since they have to pay the government's negative interest rate on the deposits, they don't want free deposits. The article mentions how other banks have done the same thing by increasing management fees, which sounds more offensive to me. It's also the Swiss government just asking depositors to put their money in some other country (or at least another currency). They want people to sell them in an effort to devalue their currency and help their local exporters.
kiallmacinnes 11y ago
Totally off topic, but this completely threw me while trying to read the article: > on client deposits higher than 100,000 Swiss francs ($98,650, 92,420 euros). The usage of a comma as both the thousands separator, and to separate two currencies - one using a prefix and the other a suffix - had me instantly googling the exchange rate rather than reading the rest of the article.
- mastax 11y ago
  Yes, this is a good location for a semicolon: 100,000 Swiss francs ($98,650; 92,420 euros).
  - kiallmacinnes 11y ago
    Even a semicolon is hard to read! With large numbers, I tend to read the first section and count the separators without actually reading the numbers (or separators) in the middle. Either of these would have been much clearer: $98,650; €92,420 Or 98,650 dollars; 92,420 euros
  - dragonwriter 11y ago
    Its an even better place for the word "or", which either the comma or semicolon between the numbers is standing in, poorly, for in this case. 100,000 Swiss francs ($98,650 or €92,420).
  - deleted 11y ago
    [deleted]
Analemma_ 11y ago
Before you jump in with outrage or bafflement, consider that this isn't all that shocking, nor is having to pay a bank to keep your money totally unprecedented. Consider: if you want someone else to store your car, or your junk, or your data, you have to pay them. The only reason banks normally pay you instead is that your deposits are so useful (for making loans, and profit on those loans), that it's worth it to pay you to convince you to put your money there. But if economic conditions are such that the bank can't make any profit using your money, there's no reason why they would pay you to keep it there. You might ask, why on earth would I pay a negative interest rate on deposits if I can just keep my money under my mattress? And yes, you could do that, and some people will (or they'll move to a different bank). But then you can't pay with debit cards or use any of the other services provided by a bank, or benefit from its physical security. Those things do cost the bank money which has to be paid somehow, it was just hidden from you by the interest rate.
- sliverstorm 11y ago
  It isn't utterly unprecedented either. Banks used to charge fees for holding your money (though interest could make that back and large balances might have got them waived). Free banking for all is a recent development.
  - dragonwriter 11y ago
    > Free banking for all is a recent development. Even just plain banking for all is a not-yet-achieved state (much less free banking for all.) [0] [0] https://en.wikipedia.org/wiki/Unbanked https://en.wikipedia.org/wiki/Unbanked
- quotequad 11y ago
  "Consider: if you want {to let} someone else {drive around in} your car {and rent it out to other people} ... you have to pay them." Excuse me?
  - Analemma_ 11y ago
    I was just referring to storage, like in a parking garage or something. Sorry if my run-on sentence made it a little obtuse :-)
shadowmint 11y ago
I understand the principal of 'negative interest rates'; ie. if your interest rate is -ve, it incentivizes banks to move money into the economy rather than just holding on to it. However, I keep reading this in articles: "Although retail banks have yet to pass on that negative to rate to Swedish consumers". What does that actually mean? Why are the banks affected at all by what the government determines the interest rate to be? What is this charge they would be 'passing the charge on to consumers'? It's not like the total amount of money in the bank mysteriously grows or shrinks based on the government stipulated interest rate every year, and I've certainly seen many places where banks refused to pass on interest rate changes to consumers in general. Is this just the rate applied to treasury bonds? Or some kind of tax related thing?
- dragonwriter 11y ago
  > Why are the banks affected at all by what the government determines the interest rate to be? What is this charge they would be 'passing the charge on to consumers'? The interest rates set by central banks are the (targets for) rates that regular banks pay (and receive) for interbank loans, and therefore represents the marginal costs that banks avoid by additional customer deposits. So, it makes sense for what banks are willing to pay customers for money to be influenced by what they would have to pay to replace that money via interbank loan. > Is this the rate applied to treasury bonds? Treasury yields are controlled by different mechanisms.
  - shadowmint 11y ago
    > are the (targets for) rates that regular banks pay ...surely, though, this means that it's only relevant if a broad number of banks decide to adopt the 'official' interest rate. Unless there's some legal penalty to doing so, I don't understand why the swiss banks are simply refusing to adopt the -ve rate.
    - dragonwriter 11y ago
      > ...surely, though, this means that it's only relevant if a broad number of banks decide to adopt the 'official' interest rate. Central banks are often either governed in substantial part by member banks who are also the largest banks in the economy (as is the case with the US Federal Reserve) and/or have influence that can be used to align practical interbank lending rates with the target rates (if they didn't, rate setting would be immaterial), such as the ability to issue banknotes and lend them themselves at the target rate.
drpgq 11y ago
Gold doesn't pay interest. But it doesn't have a negative interest rate either.
- auntienomen 11y ago
  OTOH, the value of gold does fluctuate relative to other numeraires. Its value in $USD has been dropping steadily for a few years now.
- evanpw 11y ago
  If you take your gold bars down to the bank or to a warehouse, they will absolutely charge you to store them (from what I can Google, on the order of 1% per year).
  - nstj 11y ago
    This however isn't the same as depositing $ in a bank though, where you're "loaning" your $ to the bank who will in turn loan it out to someone else (hopefully earning interest in the meantime!). If you were simply giving $ to the bank to safeguard and not loan to anyone then you would imagine they'd charge you as there would be no potential interest earnings on your "deposit"
    - kasey_junk 11y ago
      That is essentially what this bank is responding to. They can't make enough lending the money as it takes to hold. So they charge you a storage fee in the form of negative interest. The most interesting thing to me is that they are charging big depositors more than small depositors. This seems crazy given the costs of banks is usually considered fixed per dipositer. This could be more about the banks politics than actual banking costs, I suppose.
      - auntienomen 11y ago
        I think it's because big depositors are considered (by regulators) to be more likely to pull their deposits at any sign of trouble. It's riskier to hold and relend such assets.
steve19 11y ago
"A tiny Swiss bank .... The bank describes itself as an ethical organisation focused on backing firms investing in social and environmental projects." This is the crux of the matter. Thier depositors are paying a mich higher fee by choice, in exchange for feeling good about their banking. I pay more for ethical food, clothes even childrens' toys to essentially make myself feel good/better about my spending. This bank can get away with it. Other can't (at least for individual rather than institutional depositors).
pmorici 11y ago
The only thing surprising about this is that they are implementing it in the form of an explicit negative interest rate instead of hiding it from the customers in a per month account fee charge or something like that. Rates have been effectively negative for a while now it's just that in the US the banks have implemented it by piling on fees instead of explicitly charging a negative rate.
nstj 11y ago
This happened 4 years ago for institutional clients, see: http://www.wsj.com/articles/SB10001424053111903366504576488123965468018 http://www.wsj.com/articles/SB100014240531119033665045764881...
karlorykard 11y ago
For those interested in reading some academic literature related to the subject, read Fischer Black's Interest Rates as Options.
chrido 11y ago
That's not so surprising, the base rate is negative since more than a year. Because of fear in EUR, many people instead of buying Gold, people bought CHF. One of my friends said: its a beautiful country and has a lot of assets, so there is not much of a difference. The SNB [1] fixed the EUR/CHF to 1.20 for quite long time until it was dropped suddenly at 15.1.2015. From one day to another all goods in the EU cost ~20% less for the Swiss people. As I live near the Austrian/Swiss boarder, there were many Swiss people coming over to Austria that time, buying as much stuff they could get and importing to Swiss. Main problem for the Swiss economy is that suddenly goods from Swiss companies are ~20% more expensive than competitors outside of Swiss. Or employees in Swiss are suddenly 20% more expensive if your main currency is EUR or USD. That's bad for the economy. On the 15.1.2015 they also changed the policy from fixed EUR/CHF exchange rate to negative interest rates to reduce the influx of money. Currently the rate at which the SNB borrows to the banks is -0.81% [2]. A friend of mine pays a premium of 0.75% on the base rate for his loan on the house, so the currently borrows from the bank at -0.06%. So what else could you do with your CHF? Buy Swiss Confederation bonds, the current yield is also negative, -0.28% [2]. Or buy EUR, more risky but more interest? Put under your pillow, too risky? Exchange to gold, pay for insurance or to keep it safe? Bonds of a country nearby? Only 0.46% for 10 years in Germany [3] and in EUR. [1] http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_interest_exchange_rates#t3 http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_in... [2] http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_interest_exchange_rates#t2 http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_in... [3] http://www.deutsche-finanzagentur.de/de/factsheet/sheet-detail/productdata/sheet/DE0001102374/ http://www.deutsche-finanzagentur.de/de/factsheet/sheet-deta...

43 points by randomname2 11y ago

AnimalMuppet 11y ago

That seems like just asking your depositors to put their money somewhere else...

Asbostos 11y ago
I think that's exactly what they're doing. Since they have to pay the government's negative interest rate on the deposits, they don't want free deposits. The article mentions how other banks have done the same thing by increasing management fees, which sounds more offensive to me. It's also the Swiss government just asking depositors to put their money in some other country (or at least another currency). They want people to sell them in an effort to devalue their currency and help their local exporters.

kiallmacinnes 11y ago

Totally off topic, but this completely threw me while trying to read the article: > on client deposits higher than 100,000 Swiss francs ($98,650, 92,420 euros). The usage of a comma as both the thousands separator, and to separate two currencies - one using a prefix and the other a suffix - had me instantly googling the exchange rate rather than reading the rest of the article.

mastax 11y ago
Yes, this is a good location for a semicolon: 100,000 Swiss francs ($98,650; 92,420 euros).
- kiallmacinnes 11y ago
  Even a semicolon is hard to read! With large numbers, I tend to read the first section and count the separators without actually reading the numbers (or separators) in the middle. Either of these would have been much clearer: $98,650; €92,420 Or 98,650 dollars; 92,420 euros
- dragonwriter 11y ago
  Its an even better place for the word "or", which either the comma or semicolon between the numbers is standing in, poorly, for in this case. 100,000 Swiss francs ($98,650 or €92,420).
- deleted 11y ago
  [deleted]

Analemma_ 11y ago

Before you jump in with outrage or bafflement, consider that this isn't all that shocking, nor is having to pay a bank to keep your money totally unprecedented. Consider: if you want someone else to store your car, or your junk, or your data, you have to pay them. The only reason banks normally pay you instead is that your deposits are so useful (for making loans, and profit on those loans), that it's worth it to pay you to convince you to put your money there. But if economic conditions are such that the bank can't make any profit using your money, there's no reason why they would pay you to keep it there. You might ask, why on earth would I pay a negative interest rate on deposits if I can just keep my money under my mattress? And yes, you could do that, and some people will (or they'll move to a different bank). But then you can't pay with debit cards or use any of the other services provided by a bank, or benefit from its physical security. Those things do cost the bank money which has to be paid somehow, it was just hidden from you by the interest rate.

sliverstorm 11y ago
It isn't utterly unprecedented either. Banks used to charge fees for holding your money (though interest could make that back and large balances might have got them waived). Free banking for all is a recent development.
- dragonwriter 11y ago
  > Free banking for all is a recent development. Even just plain banking for all is a not-yet-achieved state (much less free banking for all.) [0] [0] https://en.wikipedia.org/wiki/Unbanked https://en.wikipedia.org/wiki/Unbanked
quotequad 11y ago
"Consider: if you want {to let} someone else {drive around in} your car {and rent it out to other people} ... you have to pay them." Excuse me?
- Analemma_ 11y ago
  I was just referring to storage, like in a parking garage or something. Sorry if my run-on sentence made it a little obtuse :-)

shadowmint 11y ago

I understand the principal of 'negative interest rates'; ie. if your interest rate is -ve, it incentivizes banks to move money into the economy rather than just holding on to it. However, I keep reading this in articles: "Although retail banks have yet to pass on that negative to rate to Swedish consumers". What does that actually mean? Why are the banks affected at all by what the government determines the interest rate to be? What is this charge they would be 'passing the charge on to consumers'? It's not like the total amount of money in the bank mysteriously grows or shrinks based on the government stipulated interest rate every year, and I've certainly seen many places where banks refused to pass on interest rate changes to consumers in general. Is this just the rate applied to treasury bonds? Or some kind of tax related thing?

dragonwriter 11y ago
> Why are the banks affected at all by what the government determines the interest rate to be? What is this charge they would be 'passing the charge on to consumers'? The interest rates set by central banks are the (targets for) rates that regular banks pay (and receive) for interbank loans, and therefore represents the marginal costs that banks avoid by additional customer deposits. So, it makes sense for what banks are willing to pay customers for money to be influenced by what they would have to pay to replace that money via interbank loan. > Is this the rate applied to treasury bonds? Treasury yields are controlled by different mechanisms.
- shadowmint 11y ago
  > are the (targets for) rates that regular banks pay ...surely, though, this means that it's only relevant if a broad number of banks decide to adopt the 'official' interest rate. Unless there's some legal penalty to doing so, I don't understand why the swiss banks are simply refusing to adopt the -ve rate.
  - dragonwriter 11y ago
    > ...surely, though, this means that it's only relevant if a broad number of banks decide to adopt the 'official' interest rate. Central banks are often either governed in substantial part by member banks who are also the largest banks in the economy (as is the case with the US Federal Reserve) and/or have influence that can be used to align practical interbank lending rates with the target rates (if they didn't, rate setting would be immaterial), such as the ability to issue banknotes and lend them themselves at the target rate.

drpgq 11y ago

Gold doesn't pay interest. But it doesn't have a negative interest rate either.

auntienomen 11y ago
OTOH, the value of gold does fluctuate relative to other numeraires. Its value in $USD has been dropping steadily for a few years now.
evanpw 11y ago
If you take your gold bars down to the bank or to a warehouse, they will absolutely charge you to store them (from what I can Google, on the order of 1% per year).
- nstj 11y ago
  This however isn't the same as depositing $ in a bank though, where you're "loaning" your $ to the bank who will in turn loan it out to someone else (hopefully earning interest in the meantime!). If you were simply giving $ to the bank to safeguard and not loan to anyone then you would imagine they'd charge you as there would be no potential interest earnings on your "deposit"
  - kasey_junk 11y ago
    That is essentially what this bank is responding to. They can't make enough lending the money as it takes to hold. So they charge you a storage fee in the form of negative interest. The most interesting thing to me is that they are charging big depositors more than small depositors. This seems crazy given the costs of banks is usually considered fixed per dipositer. This could be more about the banks politics than actual banking costs, I suppose.
    - auntienomen 11y ago
      I think it's because big depositors are considered (by regulators) to be more likely to pull their deposits at any sign of trouble. It's riskier to hold and relend such assets.

steve19 11y ago

"A tiny Swiss bank .... The bank describes itself as an ethical organisation focused on backing firms investing in social and environmental projects." This is the crux of the matter. Thier depositors are paying a mich higher fee by choice, in exchange for feeling good about their banking. I pay more for ethical food, clothes even childrens' toys to essentially make myself feel good/better about my spending. This bank can get away with it. Other can't (at least for individual rather than institutional depositors).

pmorici 11y ago

The only thing surprising about this is that they are implementing it in the form of an explicit negative interest rate instead of hiding it from the customers in a per month account fee charge or something like that. Rates have been effectively negative for a while now it's just that in the US the banks have implemented it by piling on fees instead of explicitly charging a negative rate.

nstj 11y ago

This happened 4 years ago for institutional clients, see: http://www.wsj.com/articles/SB10001424053111903366504576488123965468018 http://www.wsj.com/articles/SB100014240531119033665045764881...

karlorykard 11y ago

For those interested in reading some academic literature related to the subject, read Fischer Black's Interest Rates as Options.

chrido 11y ago

That's not so surprising, the base rate is negative since more than a year. Because of fear in EUR, many people instead of buying Gold, people bought CHF. One of my friends said: its a beautiful country and has a lot of assets, so there is not much of a difference. The SNB [1] fixed the EUR/CHF to 1.20 for quite long time until it was dropped suddenly at 15.1.2015. From one day to another all goods in the EU cost ~20% less for the Swiss people. As I live near the Austrian/Swiss boarder, there were many Swiss people coming over to Austria that time, buying as much stuff they could get and importing to Swiss. Main problem for the Swiss economy is that suddenly goods from Swiss companies are ~20% more expensive than competitors outside of Swiss. Or employees in Swiss are suddenly 20% more expensive if your main currency is EUR or USD. That's bad for the economy. On the 15.1.2015 they also changed the policy from fixed EUR/CHF exchange rate to negative interest rates to reduce the influx of money. Currently the rate at which the SNB borrows to the banks is -0.81% [2]. A friend of mine pays a premium of 0.75% on the base rate for his loan on the house, so the currently borrows from the bank at -0.06%. So what else could you do with your CHF? Buy Swiss Confederation bonds, the current yield is also negative, -0.28% [2]. Or buy EUR, more risky but more interest? Put under your pillow, too risky? Exchange to gold, pay for insurance or to keep it safe? Bonds of a country nearby? Only 0.46% for 10 years in Germany [3] and in EUR. [1] http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_interest_exchange_rates#t3 http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_in... [2] http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_interest_exchange_rates#t2 http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_in... [3] http://www.deutsche-finanzagentur.de/de/factsheet/sheet-detail/productdata/sheet/DE0001102374/ http://www.deutsche-finanzagentur.de/de/factsheet/sheet-deta...