European financial institutions have transferred 21 .4 billion euros ( $24 .2 billion ) in revenues to the European Central Bank ( ECB ) in the 5 years since negative rates of interest were announced.
The ECB introduced negative interest rates on June 11 2014, minimizing its deposit level to -0 .1% in an offer to encourage the economy, and negative interest rates are presently at -0 .4% on central bank deposits for 17 eurozone countries.
The adverse rates were meant to discourage banks from parking cash with the ECB instead of 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 regularly, as per 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 expenses.
The report, which examines ECB data, also shows charges having a considerable effect on banks’ profitability, equating to a 4% decline in profits in 2018. German banks once again bore the heaviest burden among leading 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 stated banking institutions should position themselves as platforms and offer customers a choice of third-party savings deposit products in order to minimize the negative rate burden.
“If you make open banking an integral 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 funds with the ECB at a cost they can pass on surplus liquidity to other institutions in a customer and balance-sheet-friendly means .”