0

I recently saw news that Danish bank Danske Bank is going to be offering -1% return on balances over $16,000. Obviously nobody wants a negative return on their balances so nobody is going to want this. Why is a bank disincentivizing their customers to hold balances with them? Does that have to do with central bank policies controlling the available returns that can be offered? If not, why would a bank be electing to do this themselves?

Runeaway3
  • 2,898
  • 4
  • 22
  • 39

1 Answers1

4

Because the Danish central bank is charging banks negative interest on the deposits they hold.

Current Danish central bank rates (accessed 2021-05-02)

Since the central bank is charging member banks for the assets they hold to be able to pay depositors, the banks don't want to incentivize customers to park assets with them and charge a negative interest rate in order to convince customers to move their assets elsewhere.

This is similar to what is happening in other European countries such as Germany at the moment where banks are unable to continue absorbing the negative interest rates they are charged by the central bank and are passing the costs on to customers in the form of negative rates on large balances.

Justin Cave
  • 27,287
  • 5
  • 69
  • 86
  • Ok this makes sense. What does it say about the state of monetary policy/currency strength/national debt/etc... that the Danish central bank is charging banks those negative rates? – Runeaway3 May 02 '21 at 19:36
  • 1
    @Runeaway3 - That's likely a separate question and probably more appropriate for the economics stack. Danish interest rates aren't substantially different from the rates set by the ECB so most European countries are in roughly the same boat. – Justin Cave May 02 '21 at 20:25
  • The use of negative interest rates by central banks is to force banks to make more loans and stimulate economic activity. – RiverNet May 04 '21 at 03:23