Up until now in the countries around the world where their Central Bank has set negative interest rates, it is only the banks who have been charged these by the Central Bank. The banks pay the Central Bank on any “excess reserves” they hold with the Central Bank, with the rationale being this will “encourage” the banks to lend more, and in turn people to spend more.
(Of course just the opposite seems to be happening. For instance, people in Japan are withdrawing cash from the banks and holding it in safes at home.)
Now it appears one of the worlds largest banks is looking to pass on these negative interest rates to their customers in a bid to improve their deteriorating profits. The odds are more cash will be leaving the banking system as a result…
By Justin Spittler
Is your bank about to “tax” the cash in your savings account?
It sounds like a sick joke. But it’s exactly what one of the biggest banks in the world is threatening to do. It wants to charge customers for keeping money in their savings account.
For months, we’ve been telling you that a “bank account tax” is one of the biggest threats to your wealth. And we’ve warned that governments and banks would achieve this through “negative interest rates”…
• Negative interest rates could only exist in a world run by idiot politicians…
Normally, the money in your savings account earns interest. With negative rates, you pay the bank to hold your money. In other words, negative rates flip saving on its head.
Negative rates were unheard of until a few years ago. Now, they’re spreading around the world like cancer.
Today, more than a quarter of the world’s government bonds pay negative rates. The European Central Bank (ECB) and Bank of Japan (BOJ) are using negative interest rates. Denmark, Sweden, and Switzerland have them too.
Government bureaucrats think negative rates will “stimulate” their economies. The idea is that people will spend more money if their savings are taxed.
It hasn’t worked. Europe’s economy is growing at its slowest pace since World War II. Japan’s economy hasn’t grown in two decades.
Their stock markets are struggling as well. The STOXX Europe 600, which tracks 600 large European stocks, is down 8% this year. The Nikkei 225, Japan’s version of the S&P 500, is down 13%.
• Negative rates are starving European banks of income…
Spanish banking giant BBVA’s (BBVA) profits fell 54% last quarter. First-quarter profits at Deutsche Bank (DB), Germany’s largest bank, were down 58%. Swiss bank UBS’s (UBS) profits plunged 64%.
When a central bank cuts its key interest rate, rates across the economy fall. This is good news if you want to borrow money. If you’re a lender, it’s a problem.
The policy has forced European banks to charge rock-bottom interest rates on loans. These banks also must pay negative rates on money they hold with their central banks. Both are eating into bank profits.
European banking stocks are trading like they’re on the verge of a financial crisis. The STOXX Europe 600 Banks Index, which tracks 47 large European banks, has crashed 35% over the past year.
• Now, one of the biggest banks in the world could soon be forced to tax its customers…
This week, UBS said it may start charging customers negative rates. Bloomberg Business reported on Wednesday:
UBS Group AG Chief Executive Officer Sergio Ermotti said the bank may pass on the cost of holding cash to its very wealthy clients and raise charges on borrowings, the strongest indication yet that it may stop shielding individuals from the impact of negative rates.
UBS is Switzerland’s largest bank. Today, it pays 0.75% to keep money with the Swiss central bank.
UBS could offset this cost by taxing people’s savings. Unfortunately, it probably won’t stop at “very wealthy clients.” That’s because negative rates look like they’re here to stay. The Wall Street Journal reported on Tuesday:
“We can all only hope that the times of such drastic measures by the central bank pass as quickly as possible,” said Mr. Weber [UBS Chairman]…
“Unfortunately, I have to say, unfortunately, there is little indication that negative interest rates will soon be a thing of the past.”
• Other European banks could soon implement “bank account taxes”…
As noted, Europe is barely growing. Mario Draghi, head of the ECB, has said he’ll do “whatever it takes” to help Europe’s economy.
Right now, the ECB’s key rate is at -0.4%. If the economy continues to weaken, Draghi could cut rates again. And there’s good reason to think the ECB could go much deeper with negative rates. As mentioned, Switzerland’s key interest rate is at -0.75%.
The lower the ECB takes rates, the more damage it will do to the banking system. European banks could soon have no choice but to pass along negative rates to customers.
• We could see a “bank account tax” in America…
Some people might think we’re crazy for saying this. After all, the U.S. doesn’t have negative rates yet.
Today, the Federal Reserve’s key rate is at 0.38%. That’s well below its historic average of 5.0% but still much higher than the key rates in Europe or Japan.
We think it’s only a matter of time until negative interest rates come to the U.S. In February, Fed Chair Janet Yellen said negative rates aren’t “off the table” if the economy runs into trouble.
• Negative rates show that something is very, very wrong with the global financial system…
Again, under negative interest rates, you must pay a fee to store cash at the bank. Negative rates are a perversion of saving and a perversion of capitalism.
So how can you protect yourself from this lunacy?
By far the most important move you can make today is to own gold. As we often remind you, gold has served as “real money” for centuries. It’s survived bank runs, economic depressions, and every other kind of economic meltdown.
Gold is the ultimate money because it’s durable, easily divisible, and portable. Its value is intrinsic and recognized around the world. And unlike paper currency, it cannot be created from thin air.
The last point is huge. These days, governments will do whatever it takes to stop a financial crisis.
We aren’t sure what the Fed will do when the next “big one” arrives. It could borrow trillions more dollars. It could print more money. It could use negative rates. Whatever the Fed does, it will certainly do more damage than good.
If you do anything to protect yourself from the fragile financial system, own gold. Its value could easily triple in the coming years.
You can learn other ways to protect your wealth by watching this short video presentation. It’s a “must-watch” for anyone nervous about the banking system, global economy, or reckless governments. Click here to watch this free video.
Chart of the Day
European banks are trading like they’re in a financial crisis.
Today’s chart shows the performance of the STOXX Europe 600 Banks Index, which tracks 47 of Europe’s biggest banks. This group includes Deutsche Bank, UBS, and BNP Paribas (BNP), the largest bank in France.
The index has plunged 35% since last May. It’s near its lowest level since 2012.
Europe’s banking sector will struggle as long as the ECB uses negative rates. Many banks will have no choice but to pass along negative rates to customers.
If you live in Europe, you need to prepare for the coming bank account tax. Americans should also prepare. As we’ve shown, it probably won’t be long before negative rates appear in America.