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UK banks given six months to prepare for negative interest rates

theguardian.com

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Re: UK banks given six months to prepare for negative interest rates

#61

Post by aaomidi »

GordonS wrote: post #46
websites222 wrote: post #26

Earlier quoted context omitted.

Europe yes. US, no. The US is in an amazing position in terms of demography and growth. Aging population, but not immigrant averse like Japan and not an island. The US borders a rising economy with perfect demographics for growth (Mexico). The US is the least involved country in global trade. The US is increasingly disinterested in being the world police, so that capability can be deployed to protect economic interes…

> not immigrant averse like Japan and not an island As the past 4 years have demonstrated, there is a very large segment of the US population is very much against immigration, and would happily turn the country into an "island" by building walls around the land borders.

Good thing is that segment of population is:

1. Dying out.

2. Not in places immigrants want to immigrate to.

Re: UK banks given six months to prepare for negative interest rates

#62

Post by xenocratus »

blackbear_ wrote: post #33
treespace88 wrote: post #18

Earlier quoted context omitted.

I don’t think so. All loans have terms and minimum payments. So if you borrow $1000 over a year at -1% you still have to make $990 in payments, or you will default.

So, forgive the ingenuity, what prevents me from taking that 1000 loan, park it in my bank account, and repay the 990 due in a year (earning 10 in the process)?

1. Inflation: you will have 10 at the value of the currency in 2022, not 2021

2. Negative savings rates:

> There are fears that negative lending rates, which are expected to lower borrowing costs for households and businesses, would force high street banks and building societies to offer negative savings rates.

If you put it in your bank account you will lose some of it. The idea is that the bank is paying you to hold the money because otherwise it would have to pay the central bank more than that to hold (some of) it - or at least, that's how I understand it.

Re: UK banks given six months to prepare for negative interest rates

#64

Post by [deleted] »

blackbear_ wrote: post #33
treespace88 wrote: post #18

Earlier quoted context omitted.

I don’t think so. All loans have terms and minimum payments. So if you borrow $1000 over a year at -1% you still have to make $990 in payments, or you will default.

So, forgive the ingenuity, what prevents me from taking that 1000 loan, park it in my bank account, and repay the 990 due in a year (earning 10 in the process)?

[deleted]

Re: UK banks given six months to prepare for negative interest rates

#65

Post by stephen_g »

JohnJamesRambo wrote: post #8
stickfigure wrote: post #3

Can someone explain this, Matt Levine-style? I mean, if someone offered to pay me interest to take out a loan, I'd immediately request MAXINT.

It’s a negative interest rate for banks to keep their money with a central bank. It is supposed to discourage banks from hoarding money and stimulate the economy by giving out more loans. Like all things economic there are debates about if it works or not. https://www.cnbc.com/2020/06/12/do-negative-interest-rates-w...

That’s the idea, yes. But it should be pretty obvious that it doesn’t work, for the same reasons QE doesn’t. Because banks can’t actually ‘loan out from reserves’ to their customers (they can loan reserves to other banks, but can’t to anyone who doesn’t have an account with the central bank). It actually can’t be made to work in terms of accounting operations. The role of reserves is settling transfers, so the bank obviously needs to have them as part of the process, but that happens later, after the loan is written (which creates the asset (loan) and liability (deposit) on the bank’s balance sheet). So having excess reserves doesn’t really increase the bank’s ability to extend more loans anyway, and taxing reserves just makes the bank want to buy more equities to get a positive rate.

Re: UK banks given six months to prepare for negative interest rates

#66

Post by ardy42 »

aaomidi wrote: post #61
GordonS wrote: post #46

Earlier quoted context omitted.

> not immigrant averse like Japan and not an island As the past 4 years have demonstrated, there is a very large segment of the US population is very much against immigration, and would happily turn the country into an "island" by building walls around the land borders.

Good thing is that segment of population is: 1. Dying out. 2. Not in places immigrants want to immigrate to.

> 2. Not in places immigrants want to immigrate to.

There's reason to doubt that. A lot of Trump's support was rural, and a lot of immigrants are farm laborers.

Re: UK banks given six months to prepare for negative interest rates

#67

Post by ardy42 »

frockington1 wrote: post #50
GordonS wrote: post #46

Earlier quoted context omitted.

> not immigrant averse like Japan and not an island As the past 4 years have demonstrated, there is a very large segment of the US population is very much against immigration, and would happily turn the country into an "island" by building walls around the land borders.

Compared to other nations, the US has the least restrictive immigration laws. The US also benefits by bordering Canada with some of the most restrictive immigration laws. If you want to go where there is growth, there's no other option

> Compared to other nations, the US has the least restrictive immigration laws. The US also benefits by bordering Canada with some of the most restrictive immigration laws. If you want to go where there is growth, there's no other option

I thought Canada was far easier. I knew a software engineer who, about 15 years ago, got the Canadian equivalent of a green card as a "backup" without ever having actually lived there, in case she had problems with her US immigration. It sounded like a box ticking exercise, though this person had two masters degrees (IIRC, the second was to keep her status since she graduated from the first into a recession).

Re: UK banks given six months to prepare for negative interest rates

#69

Post by toyg »

blackbear_ wrote: post #33
treespace88 wrote: post #18

Earlier quoted context omitted.

I don’t think so. All loans have terms and minimum payments. So if you borrow $1000 over a year at -1% you still have to make $990 in payments, or you will default.

So, forgive the ingenuity, what prevents me from taking that 1000 loan, park it in my bank account, and repay the 990 due in a year (earning 10 in the process)?

> what prevents me

The other side of this rate is that the (central) bank will also charge you for holding that money parked, instead of paying you interest. That plus inflation is (supposedly) offsetting your gain, so you might as well loan out that cash to make real money - which is what the rate-setter wants.

This said, the technical answer to your question is something between "not much" and "nothing at all". Some central banks attach strings to what you can do with that borrowed money, but not all. This is why the effect of negative rates is still debated.

Re: UK banks given six months to prepare for negative interest rates

#70

Post by [deleted] »

stephen_g wrote: post #65
JohnJamesRambo wrote: post #8

Earlier quoted context omitted.

It’s a negative interest rate for banks to keep their money with a central bank. It is supposed to discourage banks from hoarding money and stimulate the economy by giving out more loans. Like all things economic there are debates about if it works or not. https://www.cnbc.com/2020/06/12/do-negative-interest-rates-w...

That’s the idea, yes. But it should be pretty obvious that it doesn’t work, for the same reasons QE doesn’t. Because banks can’t actually ‘loan out from reserves’ to their customers (they can loan reserves to other banks, but can’t to anyone who doesn’t have an account with the central bank). It actually can’t be made to work in terms of accounting operations. The role of reserves is settling transfers, so the bank o…

[deleted]
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