"International Newspapers Threaten to Charge for Articles"
Of course, unlike newspapers, there's a long-standing existence proof that banks can survive and thrive without charging for deposits, and plenty of competition to smack down those who think they can get away with such silliness.
Secret browsing window to kill any cookies, search for the URL on google, click it there. They can't serve up a different page to google visitors on threat of being banned for spam.
That was the point of zero interest from the Fed. When the interest of a savings account is barely better then keeping cash under the mattress, it encourages people to spend/invest their dollars instead of hoarding them. Whether that actually makes sense in the long term remains to be seen.
Note that people have owned gold and "valuables" for a long time. If you think owning a serious art painting is free, you're in for a surprise, especially if its insured against loss. And my safe deposit box has both a monthly rental fee and some valuable pieces of metal inside it. (And most importantly a set of USB flash drives periodically rotated in storage, which is a bit off topic)
Bitcoins aren't money, not yet at least. When I could pay my mortgage and my electricity bill with bitcoins, then it may become money. Until then, it's no more money than baseball cards, and with much larger volatility.
US banks warn Fed interest cut could force them to charge depositors
Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves.
Depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households.
The warning by bank executives highlights the dangers of one strategy the Fed could use to offset an eventual “tapering” of the $85bn a month in asset purchases that have fuelled global financial markets for the last year.
Minutes of the Fed’s October meeting published last week showed it was heading towards a taper in the coming months – perhaps as soon as December – but wants to find a different way to add stimulus at the same time. “Most” officials thought a cut in the interest on bank reserves was an option worth considering.
Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4tn in reserves they hold at the Fed would lead them to pass on the cost to depositors.
Banks say they may have to charge because taking in deposits is not free: they have to pay premiums of a few basis points to a US government insurance programme.
“Right now you can at least break even from a revenue perspective,” said one executive, adding that a rate cut by the Fed “would turn it into negative revenue – banks would be disincentivised to take deposits and potentially charge for them”.
Other bankers said that a move to negative rates would not only trim margins but could backfire for banks and the system as a whole, as it would incentivise treasury managers to find higher-yielding, riskier assets.
“It’s not as if we are suddenly going to start lending to [small and medium-sized enterprises],” said one. “There really isn’t the level of demand, so the danger is that banks are pushed into riskier assets to find yield.”
The danger of negative rates has deterred the Fed from cutting interest on bank reserves in the past. If it were to do so now, it would most probably expand a new facility that lets banks and money market funds deposit cash at a small, positive interest rate. That should avoid any need for banks to charge depositors.
About half of the reserves come from non-US banks that do not have to pay the deposit insurance fee. Their favourite manoeuvre is to take deposits from money market funds and park them overnight at the Fed, earning millions of dollars risk-free. Cutting the interest on reserves would stop that.
Lowering interest on reserves would also affect money market funds, said Alex Roever, head of US interest rate strategy at JPMorgan.
“[It] would decrease the incentive for those banks to borrow in the money markets, which in turn could leave money market funds short of certain investments and force them to bid up the price of their next best options,” he said.
Richard Gilhooly, strategist at TD Securities, highlighted some benefits to the Fed from the possible cut: “[It] would not only anchor short-term rates near zero, it also stands to boost the profits for the Fed as they pay less interest to banks,” he said.
“It’s not as if we are suddenly going to start lending to [small and medium-sized enterprises],” said one. “There really isn’t the level of demand, so the danger is that banks are pushed into riskier assets to find yield.”
I wonder how many small and medium-sized enterprises would agree that there isn't demand for bank loans. There is anecdotal evidence that small and medium-sized companies are looking for bank loans but can't get them. Is it that they truly can't get them at any rate or can't get them at the rates they want. . . Conversely, will banks be "pushed" into riskier assets because they truly have nowhere else to invest/loan their money or because lending to small/medium companies will not pay the yields required to satisfy Wall Street, their stockholders and their senior execs?
"but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households."
LOL I'm the treasurer for a kids organization and no one seems to care that we're paying about 10% on fees (sadly I wish I were kidding) in addition to real world inflation specs (not made up .gov propaganda) so we're already used to losing about 15% annually at the bank.
My personal account at a credit union with much higher balances and lower fees only loses about 5% annually on deposits.
- Financial crisis... everyone wants safe liquid assets, like short term Treasurys, bank deposits.
- Those instruments get bid up, rates go to 0.
- This breaks retail Main Street banking model... no point in banks paying to rent and staff branches, take deposits from customers when they have more deposits than they know what to do with, no safe liquid place to invest that pays any return at all.
- To not make the crisis worse with branch closures, bank layoffs, Fed starts paying interest on excess reserves... bank takes deposits, puts them at the Fed in excess reserve account, Fed pays 0.25%.
- On the one hand this saves bank branches from closing, retail customers from being charged fees... on the other hand you're paying banks not to lend in a back-door bailout.
- My first guess would be that the Fed would have to taper QE, let short rates rise above 0 before ending IOER. But maybe there is some room to reduce IOER a small amount where a retail deposit would be breakeven but the back-door bailout would be reduced/eliminated.
- Naturally the banks are going to squawk. Ultimately one side will back down and depositors probably won't have to pay fees.
Well if they can't harvest you by debt so have you pay to them for deposits, you will somehow pay. All shall be debt enslaved to The central banks artificially cheap interest rates, don't mind the Central Bank of EU chief is ex Goldman Sachs and the FED well the daughter of the senator who created it was married to the banker who wanted it.
How they harvest you, credit any form. Credit cards, mortage, car loans, boat loans, check credit, corporate loans.
Then there is the legal settlements, where the banks know they are guilty but pay not to have to go to court. London Whale, Sub prime credit, Libor scandal etc.
20 comments
[ 3.5 ms ] story [ 54.0 ms ] threadOf course, unlike newspapers, there's a long-standing existence proof that banks can survive and thrive without charging for deposits, and plenty of competition to smack down those who think they can get away with such silliness.
This method also works for WSJ.
Note that people have owned gold and "valuables" for a long time. If you think owning a serious art painting is free, you're in for a surprise, especially if its insured against loss. And my safe deposit box has both a monthly rental fee and some valuable pieces of metal inside it. (And most importantly a set of USB flash drives periodically rotated in storage, which is a bit off topic)
Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves.
Depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households.
The warning by bank executives highlights the dangers of one strategy the Fed could use to offset an eventual “tapering” of the $85bn a month in asset purchases that have fuelled global financial markets for the last year.
Minutes of the Fed’s October meeting published last week showed it was heading towards a taper in the coming months – perhaps as soon as December – but wants to find a different way to add stimulus at the same time. “Most” officials thought a cut in the interest on bank reserves was an option worth considering.
Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4tn in reserves they hold at the Fed would lead them to pass on the cost to depositors.
Banks say they may have to charge because taking in deposits is not free: they have to pay premiums of a few basis points to a US government insurance programme.
“Right now you can at least break even from a revenue perspective,” said one executive, adding that a rate cut by the Fed “would turn it into negative revenue – banks would be disincentivised to take deposits and potentially charge for them”.
Other bankers said that a move to negative rates would not only trim margins but could backfire for banks and the system as a whole, as it would incentivise treasury managers to find higher-yielding, riskier assets.
“It’s not as if we are suddenly going to start lending to [small and medium-sized enterprises],” said one. “There really isn’t the level of demand, so the danger is that banks are pushed into riskier assets to find yield.”
The danger of negative rates has deterred the Fed from cutting interest on bank reserves in the past. If it were to do so now, it would most probably expand a new facility that lets banks and money market funds deposit cash at a small, positive interest rate. That should avoid any need for banks to charge depositors.
About half of the reserves come from non-US banks that do not have to pay the deposit insurance fee. Their favourite manoeuvre is to take deposits from money market funds and park them overnight at the Fed, earning millions of dollars risk-free. Cutting the interest on reserves would stop that.
Lowering interest on reserves would also affect money market funds, said Alex Roever, head of US interest rate strategy at JPMorgan.
“[It] would decrease the incentive for those banks to borrow in the money markets, which in turn could leave money market funds short of certain investments and force them to bid up the price of their next best options,” he said.
Richard Gilhooly, strategist at TD Securities, highlighted some benefits to the Fed from the possible cut: “[It] would not only anchor short-term rates near zero, it also stands to boost the profits for the Fed as they pay less interest to banks,” he said.
I wonder how many small and medium-sized enterprises would agree that there isn't demand for bank loans. There is anecdotal evidence that small and medium-sized companies are looking for bank loans but can't get them. Is it that they truly can't get them at any rate or can't get them at the rates they want. . . Conversely, will banks be "pushed" into riskier assets because they truly have nowhere else to invest/loan their money or because lending to small/medium companies will not pay the yields required to satisfy Wall Street, their stockholders and their senior execs?
LOL I'm the treasurer for a kids organization and no one seems to care that we're paying about 10% on fees (sadly I wish I were kidding) in addition to real world inflation specs (not made up .gov propaganda) so we're already used to losing about 15% annually at the bank.
My personal account at a credit union with much higher balances and lower fees only loses about 5% annually on deposits.
- Those instruments get bid up, rates go to 0.
- This breaks retail Main Street banking model... no point in banks paying to rent and staff branches, take deposits from customers when they have more deposits than they know what to do with, no safe liquid place to invest that pays any return at all.
- To not make the crisis worse with branch closures, bank layoffs, Fed starts paying interest on excess reserves... bank takes deposits, puts them at the Fed in excess reserve account, Fed pays 0.25%.
- On the one hand this saves bank branches from closing, retail customers from being charged fees... on the other hand you're paying banks not to lend in a back-door bailout.
- My first guess would be that the Fed would have to taper QE, let short rates rise above 0 before ending IOER. But maybe there is some room to reduce IOER a small amount where a retail deposit would be breakeven but the back-door bailout would be reduced/eliminated.
- Naturally the banks are going to squawk. Ultimately one side will back down and depositors probably won't have to pay fees.
Banks vs You http://en.wikipedia.org/wiki/File:Claas-lexion-570-1.jpg
How they harvest you, credit any form. Credit cards, mortage, car loans, boat loans, check credit, corporate loans.
Then there is the legal settlements, where the banks know they are guilty but pay not to have to go to court. London Whale, Sub prime credit, Libor scandal etc.