Visco (that’s really his name) over at the ECB says that they are seriously considering a negative deposit rate. What?!?! What does that even mean? You put your money in the bank and it slowly depletes? Why would anyone (person or institution) put their money in a bank if that ever happens? Am I misunderstanding something here? Has this ever happened in history before?
OK so this article answered some of my questions, but I still don’t understand how it can work in practice. It seems to me that the retail banking and corporate banking clients would withdraw all their assets. It would start a run on the banks.
What’s a negative deposit rate anyway? - The Tell - MarketWatch
No, you will not be charged but the ECB will charge banks for deposits at the ECB. I am sure banks will find a way to pass on the costs before increasing lending and non-Euro countries have tried a negative deposit rate without much success.
Your reaction is exactly why it’s a terrible idea. Anyone who’s worth a damn knows this as well which is why you can see how EUR keeps rallying or at least doesn’t move whenever there’s talk of those negative deposit rates. The market participants have been calling the ECB’s bluff for a while now.