ECB Gets Clocked by the Two Biggest German Banks

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.

The fact the government owns part of the bank and that the bank is in discussions with the government on this matter give this an aura of a government-sanctioned revolt.

A slew of German politicians have already lambasted the ECB’s negative-interest-rate absurdity and its bond buying program, and the damage and distortions they were causing.

“It is undisputable that the policy of low interest rates is causing extraordinary problems for the banks and the whole financial sector in Germany,” Finance Minister Wolfgang Schäuble told Reuters in April. “That also applies for retirement provisions.” With his bone-dry cynicism, he added, “That is why I always point out that this does not necessarily strengthen citizens’ readiness to trust in European integration.”

Commerzbank isn’t even on the forefront. But it’s the biggest German bank to leak those considerations.

In early March, The Association of Bavarian Savings Banks, which represents 71 savings banks in the State of Bavaria, leaked an internal memo to the Frankfurter Allgemeine that openly encourages its member banks to stash cash in their vaults rather than depositing it at the ECB and paying the punishment interest. To make that decision easier, it estimated the costs of holding “high cash values” in their vaults. The majority of those costs relate to the additional insurance coverage required for “ECB-cash protection,” as it said.

Those estimates were done when the punishment interest was -0.3%. Meanwhile, the ECB has raised the punishment to -0.4%. Hence, the benefits of hoarding cash are even bigger.

Reuters reported that European insurers “say they have received an increasing number of inquiries from banks examining such a move.” So this isn’t an isolated pocket. A lot of banks are now weighing the benefits of hoarding cash.

Also on that fateful June 8, Deutsche Bank, Germany’s largest bank, attacked the ECB from another direction.

David Folkerts-Landau, Chief Economist, published a scathing 12-page document, signed off by two editors and Stuart Kirk, Head of Multi-Asset Research. So this is not the crazed rant of some frustrated and wayward analyst but something close to the official word of Deutsche Bank. ECB policies are threatening to unravel the entire European Union, he wrote. Some excerpts (emphasis added):

After seven years of ever-looser monetary policy there is increasing evidence that following the current dogma – broad-based quantitative easing and negative interest rates – risks the long-term stability of the Eurozone.

But the ECB’s response is to push policy to further extremes. This causes mis-allocations in the real economy that become increasingly hard to reverse without even greater pain. Savers lose, while stock and apartment owners rejoice.

Worse, by appointing itself the Eurozone’s “whatever it takes” savior of last resort, the ECB has allowed politicians to sit on their hands with regard to growth-enhancing reforms and necessary fiscal consolidation.

Thereby ECB policy is threatening the European project as a whole for the sake of short-term financial stability. The longer policy prevents the necessary catharsis, the more it contributes to the growth of populist or extremist politics.

Another problem is that games of largess and moral hazard are hard to quit. The ECB has become the henchman of ever more demanding markets, with investors already braying for another extension of quantitative easing by September. There is also evidence that current policy reduces the pressure on banks to increase capital and to clean up non-performing loans (NPLs) and thereby keeping unprofitable companies in business.

It goes on page after page. And it tells the ECB what to do: back off. The whole thing is titled, “The ECB Must Change Course.”

Note the word Must.

Draghi’s scorched-earth policies have long been under attack by different players in Germany, including life insurers and pension funds. The ECB is undermining Germany’s retirement system; it’s already listing and will collapse if the ECB stays on this track. But the day the ECB stepped over the Rubicon and began buying corporate bonds was the first day that the two biggest banks in Germany, jointly, and from two different sides, with apparent backing from the German government, publicized their counterattack.

However, German exporters and industrial companies benefitted from the ECB’s policies, so they remained studiously quiet, for most part. Other groups benefited too. These policies are a wealth transfer, and there are happy recipients of this wealth. And hedge funds betting on what the ECB would do next profited from those policies, particularly those funds that belong to the select groups the ECB meets with in secret to pass on info about future moves. Read… This is How Draghi Will Sock it to Investors that Weren’t Invited to the Secret Meetings

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  34 comments for “ECB Gets Clocked by the Two Biggest German Banks

  1. OutLookingIn says:

    Interest rates were used to price risk. Under the current global central banks interest rate insanity, the risk pricing mechanism is non-existent.

    This entire charade is beyond ridiculous and has become hideous.
    The central bankers continue to believe they have a choice that will prevent another devastating financial crisis. They don’t!
    Only the timing is in question.

    The simple lack of prosecution of the bankers for their illegal financial legerdemain, represents an accountability that does not exist in government. And by its total lack, makes clear that the financial sector truly controls the political apparatus.

    • Dan Romig says:

      Case in point in the USA is Loretta Lynch regarding control of the political apparatus. The chosen Democratic President to be is bought and paid for by Wall Street and the war mongering Neocons.

    • Petunia says:

      Interest is the price of money. Negative interest means the money is worthless, they pay you to take it.

      • John S says:

        I want to get paid to take it. Ah, right, that is not for me. I just get to pay ever higher medical and housing costs.

  2. robert h siddell jr says:

    The Central Banks are driving the economy off a cliff and have so screwed up that they are Damned if they do or damned if they don’t do; they have decided to hit the gas again.

  3. Dan Romig says:

    “The lunatic is on the grass
    The lunatic is on the grass
    Remembering games and daisy chains and laughs
    Got to keep the loonies on the path

    I’ll see you on the dark side of the moon”

    Damn right; Commerzbank should just tell the ECB to shove it up their @#$ if the ECB wants to be paid to hold their cash as the ECB prints Euros to buy corporate bonds!

    “Money – it’s a hit
    But don’t give me that do goody good bullshi#”

    Does Draghi really think he’s doing a good deed with “whatever it takes”?
    We live in a strange time to say the least.

    • nhz says:

      Draghi is organizing, accelerating the destruction of the EU for the NWO elites.

      The EU doesn’t have much good going for it and I will be happy when it finally crahses, but one can only be afraid for what these elites are going to replace it with.

  4. Double D says:

    Desperate times call for increasingly desperate moves. ECB fraud will soon be policy in the U.S. Banks can complain all they want but it’ll fall on deaf ears. There isn’t much else left to do before the Big Reset

  5. Petunia says:

    When the banks are unwilling to do business with the central authority it is over. The Euro zone is dead.

    • frederick says:

      And the US is right behind them Got GOLD and a getaway plan? You are in South Florida right?Hope your Spanish is good

  6. Mad Max says:

    The whole idea that negative interest rates would lead to increasing credit growth never made sense. Proportionality, negative interest rates hurt lending margins more so than they improve the viability of new lending opportunities and thus reduce bank’s risk appetite for new loans.

  7. NotSoSure says:

    It would be interesting to see an article on Japan’s NIRP. Since most government debt in Japan is now owned by the Bank of Japan, what would happen if the later would just do a wholesale debt forgiveness?

    • Wolf Richter says:

      It doesn’t need to since the interest rate is on average below zero. So there’s no cost to government on issuing new debt or rolling over old debt. And the average interest rate will stay there come hell or high water, because otherwise Japan will fall into a Greek-style debt crisis, only worse, with endless chaos, and that will never happen in Japan. It will be orderly. And it happen over time.

    • d says:

      The thing with the Japanese NIRP. That most, and possibly you, miss, is that it does not actually “hit/Start” for some Banks, on some % of their deposits, for over a year, yet.

      It is a Jawbone NIRP.

      I would not be surprised in the least, if Japanese NIR, returned to 0%. Before the charges actually take effect.

      Where as draggis punish payments, are NOW, and costing German Bank’s and so tax payers, Billion’s per Annum.

      They are also costing the Club-med Banks, he is trying to protect from bankruptcy. Billions per Annum they could be using to reduce their NPL MOUNTAIN’S.

      ZIRP and 1% NIRP on deposits over a certain size at the CB can be a Stimulating policy. Draggis application of them is not.

      The cheif Mafiosi at the ECB is a huge Failure. Like his insane NIRP and Corporate bond buying policy’s.

      The only thing his policy’s achieve.

      Is a big slice of fat sliding into his and his crony’s pockets every week. As they know what bonds to buy and sell to the ECB every week ,as if you notice. Draggi is not only buying new Bond issuance’s.

      This Massive fraud Upon the Eur Taxpayers, by The Mafiosi at the ECB, his clan, and crony’s. Must be ended. NOW.



  8. nick kelly says:

    Wouldn’t it be funny if instead of storing cash, the banks converted euros to gold or possibly silver. The usual argument against gold is that it pays no interest. True but it doesn’t pay negative interest. Well, in a sense it does because you have to store it. Don’t know what the cost is compared to storing physical cash. It would take a very hot fire to melt gold, and then you surely recover the melt. Apart from that it’s indestructible.
    And the big London warehouse can’t charge that much, especially to a big customer.
    And then there is some upside potential.
    Downside? In this environment it’s looking better than euros.

    • OutLookingIn says:


      A unit of account
      Medium of exchange
      Must be portable
      Must be durable
      Must be divisible
      Must be fungible
      Most of all – must be a stable store of value.

    • d says:

      “True but it doesn’t pay negative interest. ” ?????????

      And when the price falls to below what you paid for it, or currecny values rise returning you less than you paid for it

      What is that if not a.


      • nick kelly says:

        And if the price of gold rises you have a positive return.

        • d says:

          If it rises to above what you paid for it plus costs plus the return you could have got elsewhere.

          At these buying prices, Gold is for fools that’s why all the people with it are screaming BUY GOLD.

          As they brought when the price was too high and need the price kept high.

          Gold it not worth 25% of what people are currently paying for it.

          it is the most over hyped and Crony Manipulated Commodity out there.

    • frederick says:

      You had better believe it is Better than any fiat currency in my opinion and Silver even better Get some while its on sale and still available Everyone is going to need some silver after things unravel in earnest İMO

  9. Ishkabibble says:

    Too bad that the 500 EU note is going bye bye. What banks apparently need is much larger denomination notes — say 10,000 or 100,000, etc.

    • BoyfromTottenham says:

      Great idea! Think how easy it would be for banks to store large deposits in say 1 million EU notes (which would only be available to banks). Problem solved. Next problem…?

      • d says:

        Or they could do what the Bank of England did, and refuse to Honour several of them, when they were presented, Year’s later.

        The BOE 1 million Sterling notes, even had special names, they were only used between nation’s and bank’s.

    • Agnes says:

      Perhaps this is the real reason larger denominations are going away–to prevent BANKS from stuffing the mattress :P

  10. ANON says:

    Interest does not exist, and must not exist, for the promise to be trusted and valued.
    Tricky things these negative rates. Kinda like the imaginary number i^2 = -1 :)

  11. chris Hauser says:

    i’d like to be paid to borrow. but nobody’s calling me. maybe i’m on the wrong list.

    • frederick says:

      Evidently you arent in “the club” that George Carlin warned us about Chris

  12. r cohn says:

    Where does the ECB get the “money” to buy bonds?

    Is there a limit on how large the ECB’s balance sheet can be.

    Does the ECB submit the vast majority of its income back to the Treasuries of its respective countries,similar to what the Fed does?

    What is the purpose of taxes and concern over budgetary deficits ,when the ECB will always be the buyer of bonds .

    What specifically is the mechanism of helicopter money?

    Why would an investor buy and hold 10 year bonds at 0 or negative interest rates?

    • d says:

      “Why would an investor buy and hold 10 year bonds at 0 or negative interest rates?”

      An investor wouldn’t somebody looking to ho;d their liquidity somewhere might.

  13. There isn’t much Draghi can do.

    He can try to raise policy rates (by way of repo) but the market has to cooperate. If rates actually rise, ‘investors’ would climb on and the multiplier effect would push rates down again.

    Low/negative rates are a product of deflation and resource stripping. I suggests (insists) there is nothing to invest in (and that the entire enterprise is insolvent).

    When risk reappears (default) the run would be astounding … and there will be little the bankers can do about it, including Draghi.

  14. There isn’t much Draghi can do.

    He can try to raise policy rates (by way of repo) but the market has to cooperate. If rates actually rise, ‘investors’ would climb on and the multiplier effect would push rates down again.

    Low/negative rates are a product of deflation and resource stripping. They suggest (insist) there is nothing to invest in (and that the entire enterprise is insolvent).

    When risk reappears (default) the run would be astounding … and there will be little the bankers can do about it.

    • d says:

      Yes but if he goes back to zero ZIRP and stops buying corporate bond’s at least the market will not be as heavily punished by his NRIP as it is now.

      The banks will view the NIRP losses to the ECB as a cost, to be recovered before tax, from the consumer, and deducted against tax hurting the general taxpayer. His NIRP is not stimulating the economy it is in fact tightening it.

      Draggi is trying to force Northern and German Banks into lending to fraudsters and zombies. So that they end up with an NPL mountain like his masters bank’s in italy. Then he can bail them all out at the taxpayers expense. Italian and Spanish Banking problems solved, with German Taxpayers money. Again.

      At the moment the northern and German Bank’s are basically sound so Draggi can not bail out the southern bank’s as his Mafia masters wish him to

  15. Binky says:

    The crime here is that while there are negative interest rates for some, the interest rates on other debts continues to be absurdly high: credit cards, payday loans, mortgage, infrastructure, all cash cows for loan sharks.

    How do we connect these German banks to American debts still payable at from 4 to 500 percent?

    • Jonathan says:

      But-but-but that will be helicopter money, which is taboo for anybody not the financial elites.

      When such a huge blatant scam happens right in front of 7 billion people and they simply just don’t even want to care you know humanity is more or less doomed.

Comments are closed.