Deutsche Bank eases negative interest rates and reacts to the ECB

On the left is the ECB building, which could raise interest rates as early as July.
Westend61 via Getty; Greenhouse Images via Getty; Hans-Peter Merten via GettyM Collage: Dominik Schmitt

The European Central Bank (ECB) announced last week that it will raise interest rates in July. Specifically, it should rise by 0.25 percentage points.

Deutsche Bank reacted on Monday and announced it would cut negative interest rates for private clients, known as custodian fees, by 0.25 percentage points. Postbank will also reduce negative interest rates.

Two other banks are already increasing their sight and money market allowances. The ING also announces that it is increasing the allowances for current and extra accounts (overnight money) from the current 50,000 to 500,000 euros per account.

The European Central Bank (ECB) announced Thursday that it will raise the benchmark interest rate by 0.25 percentage points in July. Deutsche Bank reacted on Monday and announced it would cut negative interest rates for private clients, known as custodian fees, by 0.25 percentage points. Postbank will also ease negative interest rates by corresponding percentage points.

“If the ECB increases the deposit rate by 0.25 percentage points in accordance with its recent July announcement, Deutsche Bank and Postbank will pass this adjustment on to their retail clients and reduce the custodian fee by 0.25 percentage points to short term, “a spokesman for Germany’s largest money bank announced Monday.

The top two banks in Germany, Sparkasse Oldenburg and VR Bank, eased negative interest rates even before the ECB’s announcement. That is to say by significantly increasing the allowances for which customers do not have to pay negative interest. It is the result of an evaluation by Biallo, a consumer portal for private finance. Biallo continuously evaluates the custody fees of German banks. And ING Germany is also relaxing, with nine million customers according to their own information, the third largest bank in Germany. In a statement, the bank announced that on 1 July 2022 it intends to increase “the allowances for credit balances on current and extra accounts (overnight money) from the current 50,000 to 500,000 euros per account”. Reason: we want to convey to the customers “the positive trend of interest rates on the capital markets and the confident expectations of the market” to the customers.

Banks are already increasing the allowances

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Oldenburgische Landesbank clients now only pay negative interest to their call money account starting at 500,000 euros. With the current account, the exempt amount even rises from 2.5 to five million euros. VR Bank is also increasing its allowance from EUR 10,000 to EUR 100,000. This should have rid most of these two banks’ customers from negative interest rates. At ING Germany, CEO Nick Jue can be quoted: “With the increase in the allowance for credit balances on current and extra accounts, the custodian fee will no longer apply to 99.9% of our customers.” And further: “Our promise, with elimination The cancellation of the custodian fee due to negative interest rates is something we are doing for almost all clients even before the European Central Bank makes a decision.”

Deposits are becoming profitable for banks again

But why do the banks do this? After all, customer deposits are currently still a negative business for banks, as they in turn can only store deposits for negative interest on ECB deposits. There are two main reasons for this and it could even lead banks to start swinging around interest rates before the ECB.

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The first reason: deposits could soon become profitable for banks again if interest rate activity picks up following the ECB’s turnaround in interest rates. So it could start a real rush for customer deposits who want to deposit their money in checking, overnight and time deposit accounts due to recurring interest.

Banks have to raise capital

There is also a second, more technical reason. In the coming year, banks will be obliged by the banking supervisor to allocate higher deposits as collateral, the so-called Basel III agreement. This also means that more banks will seek deposits from customers in order to be able to secure their loans with sufficient capital.

This is also confirmed by Sebastian Schick, editor-in-chief of the Biallo consumer portal in an interview with Business Insider: “The two banks that increased their allowances significantly increased their lending activity last year. They want to support their lending business with new deposits. “And the ING also states in the statement:” After the expected decline in customer deposits in roughly equal parts due to transfers to securities and outflows in the first quarter, the bank is now increasingly focusing again on deposit inflows. “High deposit amounts” are still associated with costs due to the ECB’s negative interest rate on deposits, but ING Germany can gradually offset these costs. “This is why the bank has decided from the start to no longer charge most of its clients in custody.

The lucrative nature of deposits and the need for loans will therefore increasingly push banks to win back customers with good account conditions.

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This article was updated on June 13th. It first appeared on April 28.

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