- ECB Gets Clocked by the Two Biggest German Banks
by Wolf Richter, http://wolfstreet.com/
A government-backed Revolt against NIRP-Obsessed Draghi
On the fateful day of June 8, when the ECB began buying euro-denominated corporate bonds, some of which now trade in negative-yield absurdity, the two biggest German banks counter-attacked in a well-coordinated two-pronged move.
Commerzbank, of which the German government owns nearly 16% as a consequence of the bailout during the Financial Crisis, leaked to Reuters with impeccable timing that it was considering hoarding tons (literally) of cash in its vaults rather than paying the punishment interest on deposits at the ECB.
That “punishment interest,” as Germans call the negative interest the ECB charges for deposits, is -0.4%. Currently, Eurozone banks have €850 billion on deposit at the ECB, so the punishment interest would cost them €3.4 billion per year.
The ECB is on a bond-buying frenzy, which creates a sea of liquidity – the money that the ECB “printed” to buy the bonds with – and banks end up with it. They’re supposed to lend it out, but demand for loans for reasonable projects is low, given the dismal investment environment in the Eurozone. So the liquidity just sloshes around and distorts and corrodes everything it comes in contact with.
These “sources familiar with the matter,” apparently “two officials, who asked not to be named because of the sensitivity of the matter,” told Reuters that Commerzbank has not made a decision yet. But the bank has “held discussions on the matter with German authorities.”
A Commerzbank spokesman told Reuters that the bank wasn’t stuffing cash into its vaults “at the moment” and refused to say if it would do so in the future.