23 January 2020

Financial Times: Eurozone bankers launch fresh push against negative rates

Eurozone bank executives have launched a fresh lobbying push to convince policymakers of the dangers of long-term negative interest rates, warning they will hurt savers and pensioners while fuelling price bubbles in riskier assets.

Bank chief executives have spent the past two years trying to force the European Central Bank to reverse its negative interest rates, which were first introduced in 2014. Other European central banks including Switzerland and Denmark also have negative rates.

Rates below zero have slashed the amount that the region’s lenders earn from bread-and-butter lending and crushed their profit margins.

But bankers’ entreaties have fallen on deaf ears, with policymakers concluding that the benefit to the eurozone economy outweighs the pain for lenders. One of Mario Draghi’s parting acts before standing down as ECB president last autumn was to tell banks to stop “being angry” about negative rates and instead focus on fixing their flawed business models.

Now European bankers are taking a different approach. In a series of private meetings with the region’s regulators and politicians at the World Economic Forum in Davos, bankers have warned of what they see as the broader perils of long-term negative interest rates, according to several people briefed on the discussions.

They pointed to data showing the impact of ultra-loose monetary policy is petering out and urged politicians to cut taxes and increase spending to boost economic growth.

Ana Botin, executive chairman of Santander, the Spanish bank, praised Mr Draghi for “saving” the euro but said: “From here onwards it is critical to look at data and behaviours.”

“It seems in many [eurozone] countries the pros of negative rates don’t outweigh the cons,” Ms Botin said in an interview with the Financial Times. “People are not taking out more loans, and savers are understandably getting more worried about how they’re going to plan for the future.”

Ralph Hamers, chief executive of ING, the Netherlands-based bank pointed to the impact on pensioners, some of whom are having to put more towards their retirement to offset the loss of income from bond yields — investments that have traditionally been used by fund managers to pay for future liabilities.

Two chief executives of large eurozone banks said they were also working on plans to pass the cost of negative rates on to a much larger chunk of retail savers, setting the stage for a political backlash that the banking industry hopes will lead to wider public awareness of the ECB’s policy.

Meanwhile, bank executives have also been lobbying politicians in countries with budget surpluses — most notably Germany — to loosen fiscal policy in the hope that more public spending and tax cuts will boost growth and inflation, paving the way for the ECB to start raising rates.

Full article on Financial Times (subscription required)

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