The Japanese BTMU no longer wants to buy Japanese debt. German banks are ready to stock tickets.
This is not yet the mutiny of the Bounty, but a mini-revolt that lies within the planet finances. Banks can no longer accept negative rates and they say so.
On Friday, June 10, at a conference in Germany, Vitor Constancio, vice president of the European Central Bank (ECB), tried to calm the game by ensuring that the rate environment was “positive” for banks. For him, the penalizing side effects of monetary policy are offset by the benefits of an increase in credit volumes or a fall in risk provisions. But the speech hardly convinces.
“The negative rates are generally bad for banks and it should not be surprising that they complain,” said Jerome Legras, Director of Research at Axiom AI. According to Bloomberg, the interest margin of the 13 largest European banks – the difference between the yield on their loans and the cost of their resource – dropped by 2.5% in the first quarter, causing a fall 20% of their profits.
The situation is all the more painful for credit institutions as the gap between short and long rates is minimal, which deprives them of “transformation” gains between different maturities.
However, as interest rates plummet in negative territory, in Japan, Switzerland or the eurozone, banks are seeing their costs rise because they struggle to pass on to their customers what goes below zero. In this world upside down, it would indeed be necessary to blow up some taboos like billing an individual the money he deposits at the counter. In fact, banks charge only institutional or even large companies.
“Blockages, sometimes legal, but especially political, prevent banks from charging deposits. In Belgium, for example, the remuneration of savings accounts can not fall below 11 basis points. It’s the law. There is, in reality, a real conflict between the will of the ECB and that of the governments “ , analyzes Mr Legras who concludes: ” in practice, the action of the ECB stops at the border of the banks “ .
Hence circumvention strategies. On Wednesday, June 8, the Japanese press revealed that Bank of Tokyo-Mitsubishi UFJ, one of the main banks in the country, intended to waive participation in auctions on the Japanese public debt.
This is the first time in Japan that a major domestic financial institution is abandoning this key position: as if, in France, Credit Agricole left the distinguished club of specialists in the value of the Treasury (SVT), responsible for ensuring the liquidity of OAT. Unthinkable? Yet, while Japan’s 10-year loan hit Thursday’s return of -0.092%, the lowest ever, Japanese banks are loath to fill their bunkers with this deleterious paper.
Another shock, the German Commerzbank thinks, according to Reuters, to store in his coffers part of its reserves, rather than entrust them to the ECB. Since March, for 1,000 euros deposited with the big moneymaker of the euro area, each bank must pay a rent of 4 euros per year. This punitive billing is intended to encourage lenders to reinject money into the economy. But as, at this stage, the demand for credit is not sufficient to absorb the mass of liquidity, banks are stuck with their heaps of cash.
Already in March, Frankfurter Allgemeine had issued a note from the Bavarian Savings Banks Association warning members that storing banknotes, even with insurance, would be cheaper than transferring them to the ECB. As for the German reinsurer Munich Re, he announced at the time that he was preparing to slip 10 million euros in a woolen stocking, in order to test the logistics linked to the physical holding of cash.
“We will also observe what others will do to avoid paying negative interest , “ warned Nikolaus von Bomhard, managing director of the world’s second largest reinsurer.
In Europe, it is no coincidence that the revolt comes from Germany where financial institutions are rich in cash. According to the Bundesbank, the ECB’s policy cost its flock € 248 million in 2015. Not all banks in the eurozone display the same sensitivity to falling interest rates. It depends on a lot of things like their volume of deposits versus credits, payday loan consolidation they give (variable or fixed rate), and so on.
Knowing that protection related to fixed rates has its limits: French banks have suffered in 2015 and again in 2016 a wave of mortgage repayments. In terms of liquidity, however, they are doing pretty well. In France, the big banks – except the Postal Bank – lend more to their customers than they receive deposits. It was a major problem in 2008 when financial markets were closed. It became an advantage in 2016.
” Buffer “
However, BNP Paribas and other Societe Generale do not benefit as much as they would like, because the regulated savings increases the price of their resource. Since July 2015, the rates for Livret A and the Livret de développement durable are set at 0.75%. This return concerns the 356 billion euros deposited on these books but above all, it “serves as a reference for all savings,” laments a banker: “in France, the saver suffers less than in Germany, because is the bank that makes the stamp. At the same time, the return on the Housing Savings Plan (1.5%) could eventually overshadow life insurance.
In July, following the publication by INSEE of inflation figures, the Governor of the Banque de France will send the Minister of Finance a recommendation concerning the remuneration of Livret A. If the calculation formula applied, this rate would have been great chances to come out at 0.25%. French banks are hoping for a decline without much belief in the political context: “Otherwise, we will reduce our expenses and close agencies. “
That’s the dollar amount of sovereign debt that circulated around the world, in May, at negative rates, according to the rating agency Fitch. Fourteen countries are concerned, with Japan representing the highest quota of negative interest rate borrowings.