
Swiss alternative bank breaks negative rates taboo - randomname2
https://news.yahoo.com/swiss-alternative-bank-breaks-negative-rates-taboo-055303880.html
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Analemma_
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.

~~~
quotequad
"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_
I was just referring to storage, like in a parking garage or something. Sorry
if my run-on sentence made it a little obtuse :-)

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pmorici
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.

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kiallmacinnes
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.

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mastax
Yes, this is a good location for a semicolon:

100,000 Swiss francs ($98,650; 92,420 euros).

~~~
dragonwriter
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).

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shadowmint
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?

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dragonwriter
> 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
> 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
> ...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.

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steve19
"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).

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

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Asbostos
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.

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chrido
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_in...](http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_interest_exchange_rates#t3)
[2]
[http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_in...](http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_interest_exchange_rates#t2)
[3] [http://www.deutsche-finanzagentur.de/de/factsheet/sheet-
deta...](http://www.deutsche-finanzagentur.de/de/factsheet/sheet-
detail/productdata/sheet/DE0001102374/)

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

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

~~~
evanpw
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
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"

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kasey_junk
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
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.

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

