Risk of Bank Runs in Denmark as Banks Introduce Negative Interest Rates

Last week, Denmark’s central bank cut its key deposit rate to minus 0.75%, a record low among developed economies. Banks will pass this on to large customers. It is a lot of money and we have to pass on part of this bill to our customers, said a Jyske Bank spokesman . I don’t hope that we will have to go lower but I don’t dare to promise it. Negative Rates Just Got Real for a Record Group of Bank Clients . Jyske has “set the ball rolling,” said Per Hansen, an investment economist at broker Nordnet. Jyske Bank said on Friday people with more than $111,100 in their bank accounts will be charged more for their deposits as it seeks to pass on some of the costs of recent rate cuts by the European and Danish central bank. Jyske Bank, Denmark’s second-largest bank, said it would introduce a negative interest rate of minus 0.75% for all corporate deposits and for private clients depositing more than 750,000 Danish crowns which equals $111,100 starting December first . From its side Switzerland’s UBS has said it will impose a negative rate of minus 0.75% on clients who deposit more than 2 million Swiss francs $2 million . Do they think that people will pay more for storing their money in a bank, when they can reduce it below the $111k threshold and spread the risk around different banks, cash, gold . All banks in the EU (and the USA) are dangerous. When they fail, you become a shareholder. Deposits belong to the bank - but now you are charged for letting them have your money. Negative interest rates do weird things to the market. Banks are supposed to take in deposits, and lend them out at better rates,and skim off the difference. Obviously banks never actually do that any more, because it is a sound business model, therefore completely unprofitable at the moment. People are now incentivised to taken their cash out of the bank, and to borrow at negative rates, because the bank then pays the borrower. It all makes perfect sense. The cash that is loaned out is created out of thin air. It may have a tenuous link to the amount held on deposit but they don't lend out the deposits they hold at all. Just wait until people realize that there are alternatives to keeping your money in the bank. I can foresee bank runs all over Europe and soon in america . The European banks tremble at the prospect of ever-deeper rate cuts because they have never fully recovered from the financial 2008-09 financial crisis, in good part because they were never propped up during the crisis like the American banks were. The U.S. financial system was treated to the mother of all bailouts. Remember former U.S. Treasury Secretary Timothy Geithner, and his “foam the runway” campaign to prevent Wall Street from collapsing through the Troubled Asset Relief Program (TARP) and the Home Affordable Modification Program (HAMP). The two initiatives saw hundreds of billions of dollars devoted to buying bank shares and mortgage-backed securities, and propping up house owners who were on the verge of default. The U.S. banks were saved and bank bosses like Lloyd Blankfein, of Goldman Sachs Group Inc., and Jamie Dimon, of JPMorgan Chase & Co, got obscenely rich. Their banks, and others, became stock market stars. Today, JPMorgan has a market value of more than US$350-billion. Deutsche Bank’s value is €14-billion. Abolishing interest rates sounds like the greatest idea since spray cheese. Money for nothing, mortgages for free! In Denmark, Jyske Bank AS is offering 10-year mortgages where the bank actually pays the borrower interest of 0.5 per cent a year. Imagine that. But that’s what happens when the banking world turns upside down. Interest rates are tumbling everywhere and turning negative in some spots. The central banks in Switzerland, Denmark, Sweden and the euro zone (the European Central Bank) have all slapped minus signs ahead of their key rates. Some US $15-trillion of bond debt around the world comes with a negative yield, that is, their investors will get back less than they paid out if they hold the bonds to maturity. In Europe, the yields on the 10-year sovereign bonds of Austria, Belgium, Denmark, Finland, France, Germany, Ireland, the Netherlands, Sweden and Switzerland are all negative. And the ones that are still positive are barely so. Today, in Europe, the default best bet is Italian bonds, which on Friday traded at a yield of 0.9 per cent. At the peak of the financial crisis, in 2012, Italian yields hit 7 per cent. Charging customers to hold their money is likely to trigger a run in the banks . I see a nightmare scenario. All of Europe goes to negative rates, people buy gold and silver or hoard cash. Money will be hoarded, locked up in a safe, not allowed to go out and play. Back in the old days, before the magic money tree, excess capital was put to work in the economy, by investing in businesses, making business loans etc. Buying gold and burying it under the back porch is not putting it to good use. Removing it from the economy reduces the money supply, as the money is no longer in circulation. That's deflationary. It is not so much what is wrong with Danske Bank. It is more a question of a general malaise that has affected most parts of Europe. The Danes are set, together with the Swedes, to commit communal Hara Kiri. If we ask ourselves how Danske Bank, or ANY bank for that matter, including Jyske Bank are going to survive negative interest rates, how any pension fund or any private saver, for that matter is going to survive negative interest rates, there can only be one question in the end. They won't. Not, at least, in a form resembling the current. It is a collapse of the banking system, the fiat reserve system, the current political system and ultimately also the Dollar. There can only be one boat that will float on these choppy waters of deceit and greed, and that is gold. For the simple reason that the people in charge cannot create more of that at will. The climate hysteria, the monetary policies, and the political landscape all stand for fall in Europe. They want to ban cash because they no longer have to worry about bank runs and because they can then charge you as much negative interest as they like. Gold is the only solution but they know that better than you, so move quickly. We live in interesting times indeed !














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