ECB Negative Interest Rate Is A Dud, Bank Deposits Are Long Gone
Interest-Rates / ECB Interest Rates Jun 08, 2014 - 12:04 PM GMTBy: Raul_I_Meijer
Much ado about nothing. That about sums up the real story behind the heated headlines on the “historic” decision by the ECB to lower its deposit rate into negative territory, from 0% to -0.1%. Because without any actual deposits, the move is empty, meaningless, showmanship, sleight of hand. There was a time when it made sense for banks to park reserves at the central bank, but that time is long gone, since banks don’t have to be afraid of each other’s hidden debts anymore. Not because those debts have disappeared , but because governments and central banks are now on the hook for them.
First, in November 2011, the Financial Stability Board published its initial official list of SIFIs or “Systemically Important Financial Institutions”, another way of saying Too Big To Fail. Being on the list may come with a few requirements, reserve ratios etc., but much more importantly it cemented the coup by the banking world in the wake of the financial crisis. Other than those few requirements, they could now act with impunity: any losses would be covered first by the people of the countries the banks had their headquarters in, but in the case of Europe also by other EU citizens.
What risks remained in the system, such as smaller banks and peripheral bonds, were taken away on July 26 2012 by Mario Draghi’s infamous “whatever it takes” speech. From there on in it’s been smooth sailing. For the banks that is, not for the various economies. To wit: yields on PIIGS bonds are now about on par with US Treasuries, even as Spanish, Italian and Greek unemployment numbers have stayed absurdly high for years now. That’s the kind of distortion you can only get through the promise of unlimited spending from central banks.
I picked up the graph below from Dutch business channel RTLZ and adapted it a little. It needs precious few further comments. From the $800 billion in deposits in early 2012, perhaps $10 billion or so is left. Chump change. The negative deposit rate has neither meaning nor impact. The Systemically Important Financial Institutions are in full control of the game. And that cannot bode well for the man and woman in the street.
By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)
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