Negative interest

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In finance , negative interest is interest that a creditor ( lender ) pays to the debtor ( borrower ). They are therefore to be paid by the investor for a bank balance, for example .

General

The negative interest is a negative price , is expressed mathematically like this with a negative number and is a price of .

As with all interest rates, a distinction must be made between the nominal interest rate , the return and the real interest rate . If the interest rate is below 0 percent, the nominal interest rate becomes the negative interest rate. The price of a security also plays a role in the return . There is a negative return with a positive nominal interest rate if the rate is so far above par that it exceeds the nominal interest rate. For example, if the nominal interest rate is 0% and the price of a bond is 100.30%, the result is a negative return. Negative real interest rates arise when the return is below the inflation rate . The creditor receives a (positive) nominal interest rate, the return is also positive, but the purchasing power of the capital employed decreases .

In July 2016, bonds worth EUR 9 trillion had negative returns . Two thirds of this amount was accounted for by Japanese bonds and one third by European bonds. In other industrialized countries, returns are positive, but also at or near historic lows.

history

The concept of negative interest rates was of US economists for a long time as so strange deemed ( English outlandish ) that it was not even mentioned in economics seminars to the 1970s. Negative interest was first clearly levied in Switzerland when, at the end of June 1972, a "commission" (negative interest) of 2% per quarter on the bank balances that have accrued since then at Swiss banks in accordance with the ordinance on the authorization requirement for borrowing abroad of July 5 Introduced in 1972 . The negative interest rate was supposed to prevent hot money from flowing into Switzerland. The ordinance existed with brief interruptions until November 1979.

In July 2012, the Danish National Bank cut the deposit rate for credit institutions from 0.05% to −0.2% in order to curb the appreciation of the Danish krone and thus make it less attractive for foreign investors . This negative interest rate has led to the additional refinancing costs incurred by the commercial banks being passed on to their borrowers. The Danish Central Bank attributes the fact that investors fully accepted the negative interest rate to the fact that investors would rather get a large part of their money back than take the risk of loss for a positive interest rate. For investors from the euro area, the bond can also lead to price gains and thus to a positive total return if the euro depreciates against the Danish krone during the investment period.

In January 2012, the Federal Republic of Germany issued money market paper with a six-month term, which yielded a return of −0.0122%. On July 18, 2012, the federal government was able to sell two-year bonds at an interest rate of −0.06%. Previously, negative interest rates had already occurred on bonds that had also been issued by Germany or the Netherlands , France and the EFSF rescue fund . In August, the federal debt management earned 3.8 billion euros from the sale of federal treasury notes, that is, their return was −0.0499 percent. In October 2012 the EFSF was able to borrow again at a negative interest rate of −0.0433% and −0.024%, in November the federal government at −0.0116 percent. On December 3, 2012, two-year Bunds were trading with a negative yield of −0.019%. In 2012, the federal government did not have to pay interest to its creditors in 21 of a total of 70 securities auctions, on the contrary, it received a premium. On January 7, 2013, the federal government was able to collect a premium of 3.5 billion euros at the auction of six-month securities, while the auction of Treasury notes with a six-month term on April 8, 2013 resulted in a negative return of 0.0002 Percent. The ESM was also able to collect a premium for its borrowing.

In Japan , too, the state was able to borrow at negative interest rates in November 2014.

Due to the continued high passive deposit facilities , the European Central Bank (ECB) was the first large central bank to introduce a negative interest rate of −0.1% on the deposit rate on June 11, 2014 in order to make bank balances of commercial banks at the ECB unattractive and to increase the credit institutions To move lending to the non-banking sector. As intended by the ECB, this signaling effect of the key interest rate radiated onto the money and capital markets . This interest rate was gradually increased to 0.5% by a decision of the ECB on September 12, 2019. On April 16, 2015, the 3-month Euribor was determined for the first time with a negative nominal interest rate of −0.002%. At the beginning of July 2014, the yield on two-year Bunds turned negative for the first time, albeit initially only for a few weeks. It has been permanently negative since January 2015.

The President of the Swiss National Bank , Thomas Jordan , was quoted in April 2015 as saying that “a negative interest rate would not contradict human nature”. In response to the euro crisis , there was a very strong appreciation of the Swiss franc. To combat this, the Swiss National Bank introduced a minimum euro-franc exchange rate of 1.20. In order to maintain this minimum rate, it announced the renewed introduction of negative interest rates on December 18, 2014; From January 22, 2015, interest of −0.25% will be charged on current accounts until further notice. On January 15, 2015, together with the abolition of the minimum euro exchange rate, it was decided to reduce the interest on balances on current accounts that exceed a certain exemption amount to −0.75%. In October 2015, Alternative Bank Switzerland (ABS) was the first bank to introduce negative interest rates in retail banking .

Since November 2014, Deutsche Skatbank and Commerzbank have been charging customers negative interest for amounts above a certain level. When the Skatbank was introduced in 2014, the tax exemption was still 3 million euros per customer and was reduced in several steps to just 25,000 euros as of January 2020. The Skatbank is one of the banks with the lowest threshold for negative interest. In January 2015, the yield on federal bonds in Germany was −0.5 percent.

In August 2015 the Federal Republic of Germany placed a two-year government bond at a nominal interest rate of −0.25% for the first time . In January 2016, euro government bonds with a volume of more than 6 trillion euros were in circulation with negative interest. Two-year government bonds from Switzerland have a value of −1.14%, Denmark −0.71% and Germany −0.29%. There was no negative interest rate on the 10-year federal bond issued in July 2016 because the bond had a nominal interest rate of 0.00% and was placed at the issue price of 100.48%. It was a negative return.

In June 2016, the yield on ten-year German government bonds fell below zero percent for the first time. In addition to the long-term trend, one of the ongoing reasons was the vote on Brexit on June 23, 2016. Some municipalities are now getting money on their debts, and euro corporate bonds are trading at negative returns.

Economic importance

Interest is prices and, like them, fulfills the economic indicator, coordination, allocation and selection function.

It is a matter of dispute whether negative interest rates also fulfill all of these functions. The indicator function is fulfilled in any case, as they signal to borrowers or investors that loans are cheap and investments are unattractive. It remains to be seen whether they will draw the correct conclusions from this.

As early as February 1936, John Maynard Keynes pointed out in his General Theory of Employment, Interest and Money that interest signals could not always fulfill their coordinating function. He said that the interest rate could not exercise the coordination function on the goods market (the entire asset market) because it took over this function on the money market and a money market equilibrium is only linked to a goods market equilibrium if the supply of goods adapts to the demand for goods. With this, Keynes set himself in opposition to Friedrich August von Hayek , who assumed in 1929 that the interest rate also had an allocation function that created a balance between investing and saving . This coordination of savings and investment decisions through the interest rate mechanism is particularly problematic. The interest rate is a price that, together with other prices , has to ensure an optimal allocation of resources to the production factors. With the help of the interest, the correct distribution between consumption and investment can be found. Negative interest rates should therefore stimulate consumption and investment in the allocation function and make saving unattractive.

In theory, the equilibrium interest rate could be less than zero, which poses a particular challenge for monetary and fiscal policy. For Carl Christian von Weizsäcker , the idea of ​​a “ savings-glow thesis ” is related to the thesis based on capital theory of the possibility of a negative, equilibrium real interest rate. In this situation, the equilibrium real interest rate, which leads to equally high investments and savings, would be less than zero.

The extent to which negative interest rates are the result of market forces or monetary policy decisions by central banks is discussed . Werner Ehrlicher is of the opinion that a policy of negative real interest rates distorts the allocation function of the markets because the selection function of interest rates is overridden. In the book cited, he questions an economic policy that works with negative real interest rates even for a short time . This has to deal with an excess of savings compared to investment opportunities worldwide ( savings glut ), which can also be a reason for negative interest rates.

In Denmark, the experience with negative interest rates has shown that citizens save even more to protect their future purchasing power . The savings rate rose while the investment rate fell. In a 2019 survey, two thirds of Swiss companies rated the costs of negative interest rates on the economy as higher than their benefits.

The negative interest leads to the destruction of wealth among broad groups of investors ( banking , pension funds , private investors , asset management companies or insurance companies ). The decline in the saving rate of private households expected by the ECB did not occur in Germany; it has even risen continuously since the beginning of negative interest rates from 2013 (2013: 8.9%, 2014: 9.5%, 2015: 9.7%, 2016 : 9.8%, 2017: 9.9% and 2018: 10.4%). Since inflation continues to prevail despite the negative interest rate , the “negative” real interest rate is higher than the negative interest rate. This makes it increasingly difficult for the investor to maintain the real value of the assets. In addition, the negative interest rate - contrary to what the ECB wanted - did not affect lending in Germany. Based on the credit volume (loans from credit institutions to companies and private individuals) in 2012 (EUR 2.436 billion), the credit volume fell by 1.3% in 2013, increased by 1.5% in 2014, 0.2% in 2015 and 3 in 2016 , 0% and in 2017 by 3.9%. Until recently, however, the growth rates were below the growth in gross domestic product , so that lending did not increase due to interest rates.

According to a calculation by the DZ-Bank , German private households alone suffered interest losses of 340 billion euros gross on deposits, bonds and life insurance between 2014 and 2016. If one subtracts the savings from lower interest rates on loans, a net loss of 200 billion euros remains.

As soon as the nominal interest rate reaches zero, hoarding as described by Keynes liquidity trap , the economic agents cash instead of spending it on consumption, because the opportunity cost of holding money are also zero, and in the event of falling inflation can from a lower price level can be assumed. The money supply disappears from the money market during the phase of the liquidity trap and is held as cash because the transaction costs of the financial investment exceed the interest. As a result, the interest rate level drops so low in a liquidity trap that every economic subject tends to expect an increase in the market interest rate and therefore holds speculative cash (cash).

Free economics and negative interest

The idea of circulating safety goes back to Silvio Gesell and the free economics he founded . According to him, the hoarding of money, even when positive interest rates fall, can be traced back to the remaining original interest rate inherent in liquid money, i.e. the pure liquidity benefit, which Keynes names as liquidity preference . Gesell warns of the associated risk of stagnation / deflation . According to Gesell, that liquidity advantage would have to be neutralized by an anti-hoarding fee (negative interest rate) for the purpose of securing circulation, i.e. to compensate for that liquidity preference. Such a negative interest rate would cause money that is not spent for a long time to lose part of its monetary value. Individuals would thereby be encouraged to consume their money continuously or. to invest in order to enable companies to safely purchase their goods through a constant circulation speed . In order to ensure a stable price index in addition to the stable velocity of circulation, the amount of money in circulation would have to be precisely controlled.

consequences

A negative interest rate no longer compensates the creditor for his credit risk and his transfer of capital. The regular bond, credit or credit interest no longer serves as a lure for creditors, but instead brings them a reduction in value when the interest rate is negative . A credit crunch cannot be eliminated by negative interest rates; it does not prevent financial investments. A negative interest rate is effective for foreign currencies if they want to reduce or prevent revaluations .

In the event of a negative nominal interest rate, the obligee must exceptionally record the interest as interest expense and not - as usual - as interest income , while the debtor receives interest income. This interest expense reduces the creditor's profit , so that he is forced to choose a form of investment in which he can book interest income as an alternative. In the event of negative real interest rates, investors on the market try to switch their investments to inflation-protected investments. Tangible assets such as stocks , real estate , raw materials or precious metals such as gold are considered to be such . Bonds fall into this category only if they are designed as inflation-linked bonds . The attempt by the central banks to keep nominal interest rates as low as possible and to keep real interest rates below zero is also known as “ financial repression ”. Negative interest rates reduce the profits of the credit institutions, so that they can switch to other risk-free forms of investment such as government bonds (with positive interest rates). In the medium term, the banks will pass the negative interest on to their customers. Foreign investors are likely to react most sensitively to this and withdraw their deposits, so that the negative interest rate can lead to a devaluation of the euro .

In the case of government bonds with a negative nominal interest rate, different groups may have an interest in such bonds or may be forced to buy them despite the predetermined loss of money. On the one hand, there is the state itself, which buys back high-interest bonds at negative interest rates and issues low-interest bonds in return. Bond and mixed funds can have a fixed quota of government bonds in the portfolio in accordance with legal or their own requirements. If money is reinvested, these funds have to buy government bonds at the current price, however high it may be. Speculators can also count on rising bond prices (falling interest rates). Security-oriented investors can accept a small loss for this security. There are also institutions and investors who have to secure loans with a certain percentage of guaranteed securities (federal bonds). Insurance companies are also required by law to invest money in their cover pool. There are not very many securities with cover pool capability, but these include federal bonds. There are also funds that must be invested in safe securities by law or court order, such as: B. Payouts to orphans through life insurance policies that are held in trust to secure training.

The alternative to financial investments is holding cash . Since holding cash equals zero interest rates, nominal negative interest rates do not normally occur in the market. At most in special situations such as the financial crisis from 2007 and the euro crisis , slightly negative nominal interest rates were observed in isolated cases. Investing in precious metals corresponds to interest-free cash holding .

If interest rate change clauses contain a reference interest rate ( Euribor , LIBOR , etc.), banks can take the negative interest rate into account in the reference interest rate if they define the level of the reference interest rate as at least 0%. The interest to be paid / received then results from the discount or premium, regardless of the development of the negative reference interest rate.

Legal issues (Germany)

There is fundamental agreement in jurisprudence that the principle of negative interest through an individual contract both within the framework of loan contract law (§ 488 ff. BGB) and within the framework of an atypical custody contract (§ 700 ff. BGB) can be agreed upon Form clauses, on the other hand, are controversial and are disputed by the fact that the negative interest rate of the deposit contradicts the legal model of § 488 ff. BGB and is also surprising in the sense of § 305c para. 1 BGB. This applies in particular to the introduction by the bank simply changing the price list in the existing deposit agreement.

The question of whether and under what circumstances banks can demand negative interest from their customers has not yet been clarified by the higher court (as of January 30, 2018) and is controversial in the legal literature. It is not clear whether "negative interest" is interest in the legal sense at all. On January 26, 2018, in one of the first proceedings in Germany, the Tübingen Regional Court issued a judgment against Volksbank Reutlingen ; According to this, "general terms and conditions of a bank, with which negative interest rates are introduced for sight, time and fixed-term deposits in relation to consumers, are then ineffective according to Section 307 of the German Civil Code (BGB) if they also include old contracts that were concluded without the customer's obligation to pay."

In a partial acknowledgment judgment, the Tübingen Regional Court came to the conclusion on May 25, 2018 that negative interest rates are not permitted, at least on paid checking accounts. This applies to both new and existing customers. This was preceded by a legal dispute between the market watchdog for finance and Volksbank Reutlingen eG, which in May 2017 introduced a so-called custody fee for credit balances on current accounts from the first euro in a price notice . In the decision on costs, the court argues that it essentially follows the arguments of the consumer advocates. During the hearing on April 27, 2018, the cooperative bank issued a cease and desist declaration.

In contrast to positive deposit interest, which is assessed as consideration for the provision of capital and consequently as income for tax purposes , the Federal Ministry of Finance does not consider negative deposit interest of credit institutions as interest in the sense of S. of § 20 paragraph 1 number 7 EStG and thus as losses that can be compensated with the income, but as a custody and deposit fee for the transfer of capital, which in the case of income from capital assets only as income-related costs from the saver lump sum according to Section 20 (9) sentence 1 EStG are covered.

Penalty interest

In the context of financial repression, negative interest is often incorrectly referred to as “penalty interest”. In the case of negative interest, however, the debtor or borrower has no legal reason to impose a penalty interest on his creditor if the transaction is smooth. Therefore the negative interest rate is not a penalty rate. The penalty interest ( Latin usura punitoria ) has been a special form of a cumulative contractual penalty since canon law , which is stipulated in the event of service disruptions (such as default ). So it is a contractual sanction . In practice, it is often charged as default interest or advance interest .

literature

  • Christoph Morscher, Andreas Horsch: Nominal negative interest rates . In: Wirtschaftsdienst , No. 2/2015, pp. 148–150.

Web links

Individual evidence

  1. ↑ Michael Ferber: Negative real interest rates threaten an end to the 'dream returns' on the capital market , in: nzz online from March 18, 2013
  2. ↑ Gerald Braunberger: Radical Uncertainty in FAZ of July 27, 2016, p. 23. Twelve trillion euros are mentioned by Gerald Braunberger, "Key rates influence bond yields, but do not determine them" faz.net of August 17, 2016
  3. ^ The New York Times, April 23, 2015, Get Paid to Borrow Money (Risks and Limits Apply) , p. 16
  4. ↑ "Denmark is turning the financial market upside down" ( Memento from August 4, 2012 in the web archive archive.today ) Financial Times Deutschland, December 30, 2011.
  5. ↑ Bond market - Germany borrows money at negative interest rates . In: FAZ.net , January 9, 2012.
  6. ↑ Schäuble makes money by getting into debt . In: Handelsblatt (online), July 18, 2012.
  7. ↑ Andreas Uhlig: Living with low and negative market interest rates . In: nzz.ch .
  8. ↑ Germany earns even more money by getting into debt . Reuters, August 13, 2012.
  9. ↑ The EFSF rescue fund gets money on good terms . Reuters, October 2, 2012.
  10. ↑ EFSF gets two billion euros on favorable terms . In: Basler Zeitung , October 16, 2012.
  11. ↑ The Confederation is getting cheap money again . In: Handelsblatt , November 12, 2012.
  12. ↑ Bettina Forner: Bunds are increasing, two-year returns are below zero percent . In: welt.de , December 5, 2012.
  13. ↑ Investors pay a premium - the federal government continues to earn money with its debts . In: tagesschau.de , January 7, 2013.
  14. ↑ Investors pay extra for German bonds . In: Handelsblatt , April 8, 2013.
  15. ↑ The rescue package taps into the capital market with Japanese help . In: FAZ.net , January 8, 2013.
  16. ↑ Japan earns money for the first time by getting into debt . In: FAZ.net , November 18, 2014.
  17. ↑ Joachim Weeber: Introduction to Economics , 2015, o. S. ( Google Books ).
  18. ↑ Thomas Jordan on April 17, 2015, quoted from: Negative interest does not contradict human nature . In: Frankfurter Allgemeine Zeitung , April 24, 2015.
  19. ↑ “SNB introduces negative interest rates. Unconventional defense of the minimum exchange rate” ( Memento from August 4, 2012 in the web archive archive.today ) NZZ, December 18, 2014
  20. ↑ National Bank cancels minimum exchange rate and lowers interest rate to −0.75% , SNB, January 15, 2015, accessed on January 15, 2015
  21. ↑ Hermann Simon / Martin Fassnacht, Price Management , 2016, p. 590
  22. ^ Deutsche Skatbank: Conditions and price list. Deutsche Skatbank, January 1, 2020, accessed January 3, 2020 .
  23. ↑ Zero percent interest on five-year government bonds . In: FAZ.net , January 20, 2015.
  24. ↑ Ten-year federal bonds cost the first time. In: tagesschau.de. Retrieved June 14, 2016 .
  25. ↑ What should I do with my money? In: Frankfurter Allgemeine Zeitung , June 14, 2016.
  26. ↑ NRW municipalities earn money with their debts . In: Die Welt , August 16, 2016.
  27. ↑ Andreas Uhlig: More and more negative returns . In: Neue Zürcher Zeitung (online), September 12, 2016.
  28. ^ John Maynard Keynes, General Theory of Employment, Interest, and Money , 1936, p. 249
  29. ↑ Friedrich August von Hayek: Geldtheorie und Konjunkturtheorie , in: Contributions to Konjunkturtforschung No. 1, 1929, p. 118
  30. ↑ Volker Häfner, Gabler Volkswirtschafts Lexikon , 1983, p. 311
  31. ↑ Gottfried Bombach: Between Economic Theory and Economic Policy , 1991, p. 93
  32. ↑ See also Carl Christian von Weizsäcker : Limits of the Concept of an Independent Central Bank , in: Wirtschaftsdienst , 92nd year (2012), no . 2, Zeit talk, pp. 91–94 doi: 10.1007 / s10273-012-1332-0
  33. ↑ Carl Christian von Weizsäcker: “Limits of the Concept of an Independent Central Bank” Wirtschaftsdienst 2012/2, Zeit talk, pp. 91–94, doi: 10.1007 / s10273-012-1332-0
  34. ↑ Carl Christian von Weizsäcker: “Euro Crisis and Its Consequences The Sword of Damocles of the Euro Appreciation” , FAZ.Net , May 10, 2013
  35. ↑ Werner Ehrlicher: Monetary Policy, Interest and National Debt , 1981, p. 67 FN 13
  36. ↑ DIE WELT of May 7, 2016, These are the fatal consequences of Draghi's negative interest rate
  37. ↑ UBS company survey: Detrimental effect of negative interest rates. November 7, 2019, accessed December 7, 2019 .
  38. ↑ Statista The Statistics Portal, saving rate of private households in Germany from 1991 to 2018 , 2019
  39. ↑ DZ-Bank Group, Annual Report 2017 , 2018, p. 22
  40. ^ David Romer , Keynesian Macroeconomics without the LM Curve , in: Journal of Economic Perspectives Volume 14, 2000, pp. 149 ff.
  41. ↑ Verlag Dr. Th. Gabler, Gablers Wirtschafts Lexikon , Volume 4, 1984, Sp. 125
  42. ↑ Philip Plickert: "The secret expropriation of savers" , faz.net, August 27, 2012
  43. ↑ a b c d Klaus-R. Wagner: On the legal effectiveness of negative interest . In: Journal of Banking and Capital Markets Law . 2017, p. 315 ff .
  44. ↑ a b c Tobias Tröger : Contract law issues of negative interest on deposits . In: NJW . 2015, p. 657-660 .
  45. ↑ a b c Hanns-Peter Kollmann: Negative interest rates, a legal economic analysis . 2016, ISBN 978-3-8487-2831-2 , pp. 77 ff., 134 ff .
  46. ↑ Wolfgang Ernst : Negative interest rates from a civil law perspective - a problem outline . In: Journal for all private law studies . 2015, p. 250 ff .
  47. ↑ Corinne Zellweger-Gutknecht: Negative interest: remuneration for assuming the monetary risk by the borrower . In: Journal for all private law studies . 2015, p. 350 ff .
  48. ↑ Kai-Michael Hingst , Karl-Alexander Neumann: Negative interest rates - the civil law classification of an only apparently new monetary policy phenomenon . In: Journal of Banking and Capital Markets Law . 2016, p. 95 ff .
  49. ↑ Schürmann / Langner: § 70. Types of deposits . In: Herbert Schimanksy , Hermann-Josef Bunte , Hans-Jürgen Lwoksi (eds.): Bankrechts-Handbuch . 5th edition. 2017, para. 25ff .
  50. ↑ Judgment of the 4th Civil Chamber of January 26, 2018 - 4 O 187/17 -. Accessed January 30, 2018 .
  51. ↑ Judgment of the 4th Civil Chamber of January 26, 2018 - 4 O 187/17 -. Accessed January 30, 2018 .
  52. ↑ Elisabeth Atzler: Why penalty interest is allowed on overnight money - and not with current accounts. Handelsblatt GmbH, June 7, 2018, accessed on June 11, 2018 .
  53. ↑ Federal Ministry of Finance: Individual questions on the withholding tax; New publication of the BMF letter GZ IV C 1 - S 2252/08/10004: 017 DOK 2015/0468306. Federal Ministry of Finance, January 18, 2016, accessed on July 11, 2020 .