For European banks and insurance companies keep financial reserves in the form of cash to become financially justified in terms of further easing, writes the Financial Times. In the case of a transition to such a practice will undermine the ability of Central banks to stimulate economic growth through the use of negative interest rates, the newspaper notes.
According to the publication, after a decline in March this year, the base rate of the European Central Bank (ECB) to 0% private Eurozone banks pay not more than 0.4% per annum for most financial instruments. The ECB tried to revive the economy, forcing banks to increase lending to business, and not just keep the money in the accounts. 2014 Bank losses from low interest rates amounted to €2,64 billion, says FT.
German reinsurance company Munich Re, according to the publication, conducted an experiment for the storage of eight-digit amount of euros in cash and recognized costs reasonable. The second largest German Bank, Commerzbank, according to the FT, is already considering a move to storage of cash.
On the one hand, says the FT, if the banks will keep their cash, then they will not effect a further reduction in the basic rate, and they will have no incentive to develop credit. On the other hand, banks will have other costs associated with the storage and transportation of money. According to the bankers, they have appropriate sized areas for the storage of banknotes of €200, which will be the largest denomination banknotes after the cessation of the issuing of banknotes in €500 in 2018.
In addition, banks will have to find insurers ready for a reasonable price to insure the cash from the robbery, earthquakes and other force majeure. According to one of the German bankers, the insurance will cost 0.5-1% of the face value of the stored banknotes. The publication notes that these costs can be justified given the rates of the Swiss Central Bank to minus 0.75 percent.
The FT calculated that if you hold the banknote to €200 in a standard portfolio, then it will fit the equivalent of $2.4 million If to insure it at 0.75% per annum, the cost would amount to $18 thousand Under the double bed with a width of 1.5 m, according to the newspaper, you can keep $100,6 million In this case, the insurance will cost $754,5 million In the RV length of 8 m will fit the bill at $7.8 billion, Their insurance will cost $58.5 million Hotel room is medium in size and can score all the bills on $11.9 billion, insurance costs in this case will be $89.25 million
The newspaper notes that the transition to the storage of reserves in cash to private banks will have to obtain permission from the Central banks. If this practice running with a sufficient number of banks, it will lead to an increase in cash money.
Currently in circulation are banknotes of Euro in the amount of €1,087 trillion. Bank reserves that they can claim in cash the regulator, amount to €988,1 billion in Total this cash can be put in 954 988 portfolios under 22 984 beds, 298 RVS or fill its 195 hotel rooms, sums up FT.