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Greed, bankers and politics play a leading role in the negative interest rate debacle in Denmark

(Bloomberg) – The country with the longest history of negative interest rates has just taken an important step that may offer a glimpse of what will happen elsewhere: In Denmark, commercial banks have had to absorb negative rates since their introduction by the central bank. in 2012. In 2019, the industry began to share the cost of this policy with retail depositors. Today, the Danes are the world champions in bearing the burden of negative rates with their banks, with 35% of deposits affected. Last week the government in Copenhagen decided to intervene. The minister in charge of banking legislation, Simon Kollerup, has taken to social media to launch an attack on the financial sector, and the “greed” he said he represents. “Banks recently lowered the bar for negative rates,” he said. “And it just has to stop.” He commented a day after Danske Bank, Denmark’s largest lender, said it was following others in the industry and cutting its tax threshold by more than half from a rate of minus 0.6%. As a result, retail depositors with more than 100,000 crowns ($ 16,000) will pay 0.6% to keep savings in excess of that amount with the bank. keep their money in a bank, ”the minister said in a written comment to Bloomberg. Kollerup, who has called the Bankers Association to talks, says there is no excuse for passing negative rates on to private clients and rejects the idea that monetary policy is playing a role. interest rate policy The current battle between the Danish banks and the government gives an idea of ​​the limits of negative interest rates and shows that these limits could be political and not monetary. lightning rod that Kollerup seized on to lead “a confrontation with greed, income inequality and division in society,” said Helle Ib, political commentator at Borsen, Denmark’s largest business newspaper. The bankers’ association, Finance Denmark, questioned the merits of Kollerup’s economic reasoning. And the central bank issued a reminder on Friday, pointing out that its negative policy rates (which are necessitated by the krone’s peg to the euro) are influencing deposit and lending rates across the economy. He also hinted that politicians should not interfere in the process. “Banks’ interest rates are an issue for them and for their customers,” Central Bank Governor Lars Rohde said. The central bank’s verbal intervention prompted a member of the opposition bloc in parliament to intervene. Alex Vanopslagh, the leader of the Liberal Alliance party, told Berlingske he summoned Kollerup to a hearing to explain his comments on the negative rates. “I am confident the minister will say he has crossed the line and lacks a basic understanding of how monetary policy works,” Vanopslagh said. Carsten Egeriis, CEO of Danske Bank, points out that Danes also benefit from low interest rates on their mortgages, which he called “the flip side”. This dynamic “most of the time outweighs the cost of negative interest rates on the deposit side,” he said. Denmark is two years ahead of the eurozone, which first introduced negative rates in 2014. Jesper Rangvid, finance professor at Copenhagen Business School says there are lessons to be learned of the Danish experience for the eurozone economies and that negative bank rates are not the destructive force previously imagined. In fact, Rangvid points out that after years of zero and ultimately negative retail deposit rates, Danish deposits have continued to rise. “The main advantage is that the customers haven’t left the banks,” he said over the phone. “It was fear in the beginning, and it didn’t happen.” Ib in Borsen says it’s not a given that Kollerup will actually intervene. At the end of the day, it’s probably more about “sending a signal than a hardcore revolution in economic policy,” she said. (Updates regarding Kollerup’s summons to a parliamentary hearing) For more articles like this, please visit us at bloomberg.com to stay ahead of the curve with the most trusted source of business news. © 2021 Bloomberg LP

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About Larry Struck

Larry Struck

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