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The Effect of Negative Interest Rates on Corporate Deposits and Banks

The arrival of negative interest rates has led to changes in how banks deal with their clients’ accounts. An example comes from Germany, where it has been revealed that more than half of the banks charge negative interest rates on corporate deposits. Meanwhile, banks there are dealing with falling profit levels.

Details of the German Survey

The details come from research carried out by the German central bank. The Bundesbank carried out their survey by speaking to 220 banks. This was done at the end of September, which was just a couple of weeks after the European Central Bank cut rates to a new record low of -0.5%.  

58% of the banks that were questioned admitted that they had put negative interest rates onto some or all of their corporate deposit accounts. On the other hand, when it comes to retail accounts, only 23% of them said that they are passing on the negative interest rates to their customers. 

The introduction of interest rates of below zero has been highly controversial in Germany. James von Moltke is the Deutsche Bank’s chief financial officer. He recently said that the bank, which is the biggest in the country, had started to pass on the negative rates to clients. 

He pointed out that this is something that is “more difficult in the private bank business than in corporate or institutional deposits”.  Generally speaking, they speak to retail clients with high balances on an individual basis, and expect to move around a fifth of them to negative rates.

Negative interest rates have been present in the Eurozone since mid-2014. This was as an attempt to stimulate the economy and encourage more borrowing. Weak economies across Europe have led to issues such as slow rates of growth and concerns over international debt collection.

However, this has caused problems for the big European banks, as they hold around €1.9tn in reserves to meet liquidity regulations. The combined return on equity in the year to June was just 6% for these banks.

What About the US?

The United States is one of the countries that have so far resisted a move to negative interest rates. However, President Donald Trump has been pushing for the Federal Reserve to cut rates further. They currently stand at 1.5% after three cuts already this year.

Trump said that negative rates are needed for the country’s businesses to stay competitive in the global market. He also said, “Give me some of that money. I want some of that money” and criticised central bankers for not cutting rates further.

Not everyone believes that lower rates are needed, though. CNBC’s Jim Cramer pointed out that lower interest rates are a “sign of weakness”. Jerome Powell is the Fed Chairman, and he has stated that negative rates aren’t “appropriate in the current environment”.


It is clear that the lowering of interest rates below zero has a number of knock-on effects. For a start, corporate customers tend to get charged interest on their deposits, as do retail clients with high balances. 

This also hurts the profits of the banks, so negative interest rates can’t simply be seen as an easy and effective way to kick-start the economy.