• European banks paid a record 7.5 billion euros on their surplus deposits in 2018 alone, amounting to 21 million euros being paid to the ECB daily.
  • Charges had a considerable impact on banks’ profitability, equating to a 4% decline in profits in 2018.

European banks have transferred 21.4 billion euros ($24.2 billion) in revenues to the European Central Bank (ECB) in the five years since negative interest rates were introduced.

The ECB introduced negative interest rates on June 11 2014, lowering its deposit rate to -0.1% in a bid to stimulate the economy, and negative interest rates are currently at -0.4% on central bank deposits for 17 eurozone countries.

The negative rates were intended to discourage banks from parking cash with the ECB rather than lending it out or investing it.

European banks paid a record 7.5 billion euros on their surplus deposits in 2018 alone, amounting to 21 million euros being paid to the ECB daily, according to a report from open banking platform Deposit Solutions.

German banks account for a third (33%) of all eurozone deposit charges from 2016 to 2018, with French banks accounting for a further 24% and Dutch banks paying 13% of total charges.

The report, which analyses ECB data, also shows charges having a considerable impact on banks’ profitability, equating to a 4% decline in profits in 2018. German banks again bore the heaviest burden among major economies, losing 9% of profits.

The costs are also increasing, Deposit Solutions’ analysis suggested, with German banks’ interest payments almost doubling over the past three years.

In comments within the report, Deposit Solutions CEO Tim Sievers said banks should position themselves as platforms and offer customers a choice of third-party savings deposit products in order to reduce the negative rate burden.

“If you make open banking a part of your business strategy, you can use third-party products to do more business with your existing customers and win new ones,” said Sievers.

“Instead of placing money with the ECB at a cost they can pass on excess liquidity to other institutions in a customer and balance-sheet-friendly way.”

Source: CNBC