Aufsätze Ökonomik

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Prof. Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.

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Negative interest rate (negative interest charge)

An instruction issued by authorities such as the government, central bank or supervisory authority to banks to debit certain depositors – usually non-residents – with a charge (commission) specified in terms of amount. The purpose of the measure is to induce such customers to withdraw their deposits. Negative interest rates became known mainly in the course of the central banks’ defensive measures against hot money around 1970. – On the part of the central bank, a commission imposed on banks for amounts parked with it. In the course of the financial crisis that followed the subprime crisis, it became apparent that institutions widely preferred to leave the money that the central bank had lent them on the cheap in their accounts at the central bank. This is because both lending on the interbank market and loans to companies seemed too risky. However, this behavior frustrates the central bank’s policy of using cheap money to stimulate fixed investment wherever possible. The ECB therefore decided in June 2014 to introduce a negative interest rate of initially 0.1 percent on the deposit facility as well as on banks’ balances with the central bank in excess of the minimum reserve requirement. – If, however, the institutions cannot find customers with whom they can expect to service a loan in accordance with the terms of the contract, then they will become involved in the real estate market or in the global commodity markets in view of the defensive measure taken by the ECB. This will encourage the emergence of bubbles there. Institutions may also decide to raise their lending rates to compensate for the central bank’s negative interest rate. – To be sure, ultimately the expectations of banks and companies must always be improved in a credible economic policy. Without this precondition, neither a zero interest rate nor a negative interest rate stimulates bank lending. – See Commission, crisis, central bank-induced, interest rate, interest rate incentive, interest rate ban.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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