Swiss alternative bank breaks negative rates taboo • Hacker News Board

Re: Swiss alternative bank breaks negative rates taboo

#11

Post by shadowmint » Tue, Nov 24, 2015, 12:42 AM UTC

I understand the principal of 'negative interest rates'; ie. if your interest rate is -ve, it incentivizes banks to move money into the economy rather than just holding on to it.

However, I keep reading this in articles: "Although retail banks have yet to pass on that negative to rate to Swedish consumers".

What does that actually mean?

Why are the banks affected at all by what the government determines the interest rate to be? What is this charge they would be 'passing the charge on to consumers'?

It's not like the total amount of money in the bank mysteriously grows or shrinks based on the government stipulated interest rate every year, and I've certainly seen many places where banks refused to pass on interest rate changes to consumers in general.

Is this just the rate applied to treasury bonds? Or some kind of tax related thing?

Re: Swiss alternative bank breaks negative rates taboo

#12

Post by dragonwriter » Tue, Nov 24, 2015, 12:49 AM UTC

shadowmint wrote: post #11

I understand the principal of 'negative interest rates'; ie. if your interest rate is -ve, it incentivizes banks to move money into the economy rather than just holding on to it. However, I keep reading this in articles: "Although retail banks have yet to pass on that negative to rate to Swedish consumers". What does that actually mean? Why are the banks affected at all by what the government determines the interest…

> Why are the banks affected at all by what the government determines the interest rate to be? What is this charge they would be 'passing the charge on to consumers'?

The interest rates set by central banks are the (targets for) rates that regular banks pay (and receive) for interbank loans, and therefore represents the marginal costs that banks avoid by additional customer deposits. So, it makes sense for what banks are willing to pay customers for money to be influenced by what they would have to pay to replace that money via interbank loan.

> Is this the rate applied to treasury bonds?

Treasury yields are controlled by different mechanisms.

Re: Swiss alternative bank breaks negative rates taboo

#13

Post by shadowmint » Tue, Nov 24, 2015, 12:57 AM UTC

dragonwriter wrote: post #12

shadowmint wrote: post #11

I understand the principal of 'negative interest rates'; ie. if your interest rate is -ve, it incentivizes banks to move money into the economy rather than just holding on to it. However, I keep reading this in articles: "Although retail banks have yet to pass on that negative to rate to Swedish consumers". What does that actually mean? Why are the banks affected at all by what the government determines the interest…

> Why are the banks affected at all by what the government determines the interest rate to be? What is this charge they would be 'passing the charge on to consumers'? The interest rates set by central banks are the (targets for) rates that regular banks pay (and receive) for interbank loans, and therefore represents the marginal costs that banks avoid by additional customer deposits. So, it makes sense for what banks…

> are the (targets for) rates that regular banks pay

...surely, though, this means that it's only relevant if a broad number of banks decide to adopt the 'official' interest rate.

Unless there's some legal penalty to doing so, I don't understand why the swiss banks are simply refusing to adopt the -ve rate.

Re: Swiss alternative bank breaks negative rates taboo

#14

Post by dragonwriter » Tue, Nov 24, 2015, 1:04 AM UTC

shadowmint wrote: post #13

dragonwriter wrote: post #12

Earlier quoted context omitted.

> Why are the banks affected at all by what the government determines the interest rate to be? What is this charge they would be 'passing the charge on to consumers'? The interest rates set by central banks are the (targets for) rates that regular banks pay (and receive) for interbank loans, and therefore represents the marginal costs that banks avoid by additional customer deposits. So, it makes sense for what banks…

> are the (targets for) rates that regular banks pay ...surely, though, this means that it's only relevant if a broad number of banks decide to adopt the 'official' interest rate. Unless there's some legal penalty to doing so, I don't understand why the swiss banks are simply refusing to adopt the -ve rate.

> ...surely, though, this means that it's only relevant if a broad number of banks decide to adopt the 'official' interest rate.

Central banks are often either governed in substantial part by member banks who are also the largest banks in the economy (as is the case with the US Federal Reserve) and/or have influence that can be used to align practical interbank lending rates with the target rates (if they didn't, rate setting would be immaterial), such as the ability to issue banknotes and lend them themselves at the target rate.

Re: Swiss alternative bank breaks negative rates taboo

#15

Post by [deleted] » Tue, Nov 24, 2015, 1:12 AM UTC

mastax wrote: post #5

kiallmacinnes wrote: post #3

Totally off topic, but this completely threw me while trying to read the article: > on client deposits higher than 100,000 Swiss francs ($98,650, 92,420 euros). The usage of a comma as both the thousands separator, and to separate two currencies - one using a prefix and the other a suffix - had me instantly googling the exchange rate rather than reading the rest of the article.

Yes, this is a good location for a semicolon: 100,000 Swiss francs ($98,650; 92,420 euros).

[deleted]

Re: Swiss alternative bank breaks negative rates taboo

#16

Post by drpgq » Tue, Nov 24, 2015, 1:27 AM UTC

Gold doesn't pay interest. But it doesn't have a negative interest rate either.

Re: Swiss alternative bank breaks negative rates taboo

#17

Post by steve19 » Tue, Nov 24, 2015, 1:36 AM UTC

"A tiny Swiss bank .... The bank describes itself as an ethical organisation focused on backing firms investing in social and environmental projects."

This is the crux of the matter. Thier depositors are paying a mich higher fee by choice, in exchange for feeling good about their banking. I pay more for ethical food, clothes even childrens' toys to essentially make myself feel good/better about my spending.

This bank can get away with it. Other can't (at least for individual rather than institutional depositors).

Re: Swiss alternative bank breaks negative rates taboo

#18

Post by auntienomen » Tue, Nov 24, 2015, 1:47 AM UTC

drpgq wrote: post #16

Gold doesn't pay interest. But it doesn't have a negative interest rate either.

OTOH, the value of gold does fluctuate relative to other numeraires. Its value in $USD has been dropping steadily for a few years now.

Re: Swiss alternative bank breaks negative rates taboo

#19

Post by alister » Tue, Nov 24, 2015, 1:49 AM UTC

dragonwriter wrote: post #12

shadowmint wrote: post #11

I understand the principal of 'negative interest rates'; ie. if your interest rate is -ve, it incentivizes banks to move money into the economy rather than just holding on to it. However, I keep reading this in articles: "Although retail banks have yet to pass on that negative to rate to Swedish consumers". What does that actually mean? Why are the banks affected at all by what the government determines the interest…

> Why are the banks affected at all by what the government determines the interest rate to be? What is this charge they would be 'passing the charge on to consumers'? The interest rates set by central banks are the (targets for) rates that regular banks pay (and receive) for interbank loans, and therefore represents the marginal costs that banks avoid by additional customer deposits. So, it makes sense for what banks…

> the rates that regular banks pay (and receive) for interbank loans

Something still doesn't make sense.

If bank A borrows $100 from bank B at 1% (positive) interest, then A has to pay back $101 to B.

If bank A borrows $100 from bank B at -1% (negative) interest, then A has to pay back $99 to B.

In the latter case, A would try to borrow as much as possible, and B would try to never lend anything.

What am I missing here?

Re: Swiss alternative bank breaks negative rates taboo

#20

Post by pmorici » Tue, Nov 24, 2015, 1:53 AM UTC

The only thing surprising about this is that they are implementing it in the form of an explicit negative interest rate instead of hiding it from the customers in a per month account fee charge or something like that. Rates have been effectively negative for a while now it's just that in the US the banks have implemented it by piling on fees instead of explicitly charging a negative rate.