How can there be negative interest rates?
- On the one hand, refinancing with negative interest rates would be possible via the deposit business: if a bank debts its customers 1.0% for invested money, it can lend it -0.50% to borrowers and thus a profit achieve.
- Second, and much closer to reality, is refinancing at interest rates below 0% over the bond market.
Bond issues with negative interest rates have been around for quite some time: placing top-rated sovereigns, such as For example, Germany, Denmark or Switzerland, bonds on the capital market are subject to redemption proceeds up to a certain maturity range above the nominal value, even though the bonds are not endowed with a coupon or equal 0.0% gt. Investors who invest in the bonds and act as lenders will therefore get back less than their initial investment.
For federal bonds Negative yields are currently realizable up to a residual maturity of approx. six years. But not only the state can refinance itself on historically favorable conditions, but also banks, for which the state is liable. These include, in particular, the state-owned Intrasavings bank, which can also place bonds at negative yields on the market.
State Bank Intrasavings could grant loans at negative interest rates
Intrasavings procures with the bonds the money with which different loan programs are refinanced. Loans z. For example, for the construction of owner-occupied residential property or for energy-efficient refurbishment, banks and savings banks are granting funds and refinancing them with Intrasavings. So far, Intrasavings funds have not passed on to negative interest rates on banks these pay at best 0.0% and do not benefit from interest rates below 0%, which the state bank issues in the refinancing.
In the short term, that will not change much. Such a step would, according to the article, be associated with far-reaching changeover measures, especially in IT. In addition, the state would have to forego revenue.
So far, negative interest rates were just marketing
In the past months has been repeatedly reported on banks that have offered real estate loans with negative interest rates. The Danish GopBank, for example, advertised its offer at the beginning of the year. However, the negative interest rate applied only for one year and was exclusive of fees, so that, taking into account all costs, the repayments of the borrower exceeded the initial payout. The negative interest rates of a bank from Switzerland were also a PR measure.
Loans with negative interest rates are outside state and thus political participation for that reason alone, hardly imaginable because, from the bank’s point of view, the cost of a loan is not just refinancing but also credit risk. In the business with personal loans, an average default risk of approx. 2.5% must be applied. In addition, banks must include an overhead charge. For the interest rate on end customers to be negative, the refinancing interest rate should therefore be well below 0%.
Credit risk is an essential part of the interest rate
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At most, negative interest rates on non-governmental banks were therefore conceivable for real estate loans with very high collateral. These loans are refinanced by private banks with Pfandbriefe, where negative returns have so far only occurred with very short maturities. Even if this were to change in the future, for example through the EurCen Bank (EB) QE program, yields would have to drop well below 0% in order to recoup selling and overhead costs can.
It is also questionable whether banks Interest rates below zero would actually be passed on to their customers, or whether this mark would become an unspoken lower limit in the competitive environment. The latter is not unlikely. In any case, before the widespread introduction of negative interest rates, various questions need to be answered. For example, after the indemnity payment: Strictly speaking, if the latter were to pay the borrower, he / she should prematurely repay a loan with negative interest.