EBS new limit of two instant access accounts with an aggregate balance max of 500K

coylemj

Got a letter from them today. I think 'instant access' is their term for a general savings account. There will be a limit of two instant access accounts per person and the aggregate balance in your two accounts may not exceed €500,000 from Nov. 24th next.

If you have more than two accounts or the aggregate balance is greater than 500K, beginning Nov 24th, you will not be able to lodge money to any of your instant access accounts until you reduce the balance or the number of accounts to comply with the new limits.

And interest reduced to 0%. From about 0.0001% so not much difference there.

JTMan

Wow! This is the first example of an Irish bank introducing a savings cap.

Most Irish credit unions have all done this and caps have gradually reduced over time.

Savings caps are one way around charging negative interest rates.

I wonder if AIB will be doing the same as EBS? It would be more difficult for AIB to put in place caps, their only alternative would be negative rates.

coylemj

JTMan wrote: »

I wonder if AIB will be doing the same as EBS? It would be more difficult for AIB to put in place caps, their only alternative would be negative rates.

+1 about a year ago, I recall reading a report from the Central Bank which said there was 1,776 deposit accounts in Irish banks with a balance of more than €1,000,000. If the number looks familiar, it's the year of the US Declaration of Independence, which is how I remember it. You'd have to wonder how those people would find a home for their excess cash if the major banks imposed a limit of 500K on their deposit accounts. The old answer would be to buy Govt. bonds but they're now paying negative rates.

JTMan

You would think that some banks will opt for negative rates on large deposits rather than caps. Most big European banks now impose negative rates above 500k/1 Million/2 Million.

Some have gone further... Starling Bank (who say they will launch in reland soon) imposed negative rates on positive euro balances over just 50k this week.

Permanent TSB don't even charge negative rights on corporate deposits. Maybe they will wind up with a lot of deposits if caps and negative rates become the norm elsewhere.

If Ulster Bank closes there's going to be a flood of cash heading towards the other banks. This is only going to increase the chances of negative rates or caps.

Timing belt

JTMan wrote: »

You would think that some banks will opt for negative rates on large deposits rather than caps.

If there IT systems can deal with negative rates. If they can't charge negative rates it would be a lot cheaper to introduce large deposit caps.

If the banks were clever they would entice customers to move from instant access to a Term deposit or a 30+ day notice account where the bank would get a funding benefit from the deposits and in turn be able to pay a better rate to the customer.

The problem is that people don't like having there money tied up in a fixed term deposit or a notice account. Negative rates or deposit caps may change this.

bobbyy gee

soon negitive interest rates will come in
and you will pay bank to hold money
https://www.bloomberg.com/quicktake/negative-interest-rates

Timing belt

bobbyy gee wrote: »

soon negitive interest rates will come in
and you will pay bank to hold money
https://www.bloomberg.com/quicktake/negative-interest-rates

This is not new, the ECB have charging negative rates on deposits since 2014.

JTMan

Timing belt wrote: »

If there IT systems can deal with negative rates. If they can't charge negative rates it would be a lot cheaper to introduce large deposit caps.

Most banks have adopted their IT systems for negative rates but yeah some still have not.

Timing belt wrote: »

If the banks were clever they would entice customers to move from instant access to a Term deposit or a 30+ day notice account where the bank would get a funding benefit from the deposits

These days there is little benefit to banks in notice accounts and term deposits. It's all surplus deposits that end up at the ECB earning negative rates.

Timing belt

JTMan wrote: »

These days there is little benefit to banks in notice accounts and term deposits. It's all surplus deposits that end up at the ECB earning negative rates.

The surplus deposits ends up at the ECB because the deposits sits within the 30 day window from a liquidity perspective. Once it is outside this window it reduces the size of cash the bank has to hold in cash which is earning negative rates at the ECB and can be used elsewhere. Any notice/term deposits greater than 30 days has a benefit to a bank.

JTMan

Timing belt wrote: »

The surplus deposits ends up at the ECB because the deposits sits within the 30 day window from a liquidity perspective. Once it is outside this window it reduces the size of cash the bank has to hold in cash which is earning negative rates at the ECB and can be used elsewhere. Any notice/term deposits greater than 30 days has a benefit to a bank.

AIB and EBS recently removed all their term deposit produces. They also removed nearly all their notice deposits. They don't want nor need this cash either. What do you think they can do with surplus term deposits? Put it in government bonds at negative rates?

Meanwhile, Charlie Weston has reported about the savings caps in todays Indo here. OP story is confirmed.

coylemj

JTMan wrote: »

Meanwhile, Charlie Weston has reported about the savings caps in todays Indo here. OP story is confirmed.

That link doesn't work, try this one....

https://www.independent.ie/business/personal-finance/ebs-is-the-first-bank-to-impose-a-cap-on-savings-39543742.html

Jim2007

Timing belt wrote: »

The surplus deposits ends up at the ECB because the deposits sits within the 30 day window from a liquidity perspective. Once it is outside this window it reduces the size of cash the bank has to hold in cash which is earning negative rates at the ECB and can be used elsewhere. Any notice/term deposits greater than 30 days has a benefit to a bank.

And in a world where no one wants the cash, where would the banks be able to benefit???? The reason we're in this situation is because the system is a wash with cash and if it continues we'll see negative interest rates being introduced.

usernamegoes

coylemj wrote: »

+1 about a year ago, I recall reading a report from the Central Bank which said there was 1,776 deposit accounts in Irish banks with a balance of more than €1,000,000. If the number looks familiar, it's the year of the US Declaration of Independence, which is how I remember it. You'd have to wonder how those people would find a home for their excess cash if the major banks imposed a limit of 500K on their deposit accounts. The old answer would be to buy Govt. bonds but they're now paying negative rates.

As I was reading this I thought, "how can he remember a specific number of accounts from a report a year ago" I then looked at the number to see if it was remarkable, then said to myself "that's the year of the US declaration, that's how I'd remember that" Then I read on...

Delta2113

We may end up with a lower limit on Prize Bonds if negative rates happen and everybody starts buying thousands off Prize Bonds.

Fintech Accounts could see a flood off money as well due to negative rates. Banks need to be careful or could scare away Customers.

The most dangerous thing that could happen is if people withdraw thousands in cash and keep it under their bed.

coylemj

Delta2113 wrote: »

We may end up with a lower limit on Prize Bonds if negative rates happen and everybody starts buying thousands off Prize Bonds

In these financially topsy-turvy times, the bizarre consequences of negative rates on Prize Bonds would be that they knock on your door, not with a big prize cheque but demanding money!

Timing belt

Jim2007 wrote: »

And in a world where no one wants the cash, where would the banks be able to benefit???? The reason we're in this situation is because the system is a wash with cash and if it continues we'll see negative interest rates being introduced.

The banks in theory should be able to benefit as it would provide funding for new lending but that lending is probably not possible due to the banks capital requirements which means there is excess liquidity in the system. At the moment this is hitting banks profitability which in turn is compounding the issue with capital if negative rates are passed onto retail deposits this will help the bank’s profitability but there will still be the same excess liquidity in the system which will end up at the ECB. Even if customers withdrew deposits due to negative rates the cash will work its way back into the system and eventually end up back at the ECB.

E.g
if the cash was put on a Revolut cards the cash will end up at bank as Revolut will need need to deposit this cash with a clearing bank and get charged negative rates on there deposit And in turn impact Revolut profitability unless they pass it on to customer and if the do customers will stop using Revolut (or similar company) and go back to coins and notes.

The only way I can see the cash not going back to the ECB is if people keep coins and notes under there bed and not spend it.

At the end of the day if the ECB print money via QE there has to be a consequence some where down the road. And in this case it looks like excess liquidity. I’m sure there must some big plan that I can’t fully see....Maybe they want everyone to spend and boost the economy and in turn generate inflation so they can start raising rates and getting out of negative interest rates.

Apologies for long post.

JTMan

Delta2113 wrote: »

Fintech Accounts could see a flood off money as well due to negative rates. Banks need to be careful or could scare away Customers.

Fintechs are not immune to negative rates.

Last week Starling Bank (who are going to open up here) started applying negative rates to positive euro balances over 50k.

It is believable that Revolut and others might copy Starlings lead.

Jim2007

Timing belt wrote: »

The banks in theory should be able to benefit as it would provide funding for new lending but that lending is probably not possible due to the banks capital requirements which means there is excess liquidity in the system. At the moment this is hitting banks profitability which in turn is compounding the issue with capital if negative rates are passed onto retail deposits this will help the bank’s profitability but there will still be the same excess liquidity in the system which will end up at the ECB. Even if customers withdrew deposits due to negative rates the cash will work its way back into the system and eventually end up back at the ECB..

Sorry but this is just nonsense... first of all the the T1s are more that sufficient in most European banks, as are their obligations under Basle III and and likely to be for Basle IV as well and that is just for starts.

The bottom line is that no possibility to of load the funds on a reasonable risk basis, no matter what theory you come up with.

Timing belt

Jim2007 wrote: »

Sorry but this is just nonsense... first of all the the T1s are more that sufficient in most European banks, as are their obligations under Basle III and and likely to be for Basle IV as well and that is just for starts.

If what you are saying is correct then there was no need for ECB/central banks to reduce capital buffers to be able to deal with the Covid Stress.

EU Banks may be adequately capitalised now but once the bad books grow due to the stress there capital requirements will increase and as a result you should have a tightening of credit conditions passed onto customer lending which is why the ECB/central banks made the decision. In addition to this the ECB pumped more excess liquidity into the market by way of QE programs (TLTRO) to ensure that that longer term rates remain low so that countries can borrow cheaply on the debt market to pay for the pandemic and at the same time encourage customer lending.

Update:
I just had a look at the CET1 ratios for the 4 main Irish banks and there is huge difference by bank and if you allow for the Management buffer on the Reg requirements BOI and PTSB must need to really watch what the use there capital on.

BOI 14.9%
PTSB 16.5%
AIB 20.2%
Ulster 26.5%

AIB and Ulster yes have adequate captial so as you say they must not be able to lend within there risk appetite.

Jim2007 wrote: »

The bottom line is that no possibility to of load the funds on a reasonable risk basis, no matter what theory you come up with.

If there is no possibility to off load funds via customer lending due to risk factors then the monetary policy that the ECB has been following for the last 6 years is seriously flawed and will only encourage more risk taking by banks.

The once sector that has seen a increase in risk taking since the introduction of negative rates is corporate lending. A good example of this is where lending to the funds industry has increased and as a result there industry has grown. However this has not happened without risks as a lot of the commercial real estate funds are particularity at risk due to Covid and if the value of commercial real estate falls you will see these funds breach lending covenants with the banks which in turn would require them to sell property and could end up in a fire sale and the potential for banks to have there capital reserves tested. This is one to watch closely over the coming months as I believe there is a bubble in that market.