Negative Interest Rates Levied By Commercial Banks and Their Impact

In mid-2014 the European Central Bank began charging negative interest rates on bank deposits. Last autumn several banks started passing these costs on to private investors with very high total deposits. Hans-Peter Burghof, University of Hohenheim, sees a “minus interest rate” as an “impossible interest rate” that disappoints the expectations of savers. For Max Otte, University of Graz, the low-interest environment promotes the creation and proliferation of large fortunes and prevents large swathes of the population from accumulating wealth. The public sector is also a winner of this policy. In the opinion of Tobias Tröger, Goethe-University of Frankfurt am Main, negative interest rates cannot be levied on existing deposit contracts. For Ansgar Belke, University of Duisburg-Essen, negative interest rates represent a market distortion, as they oblige creditors to pay for the privileges enjoyed by debtors, namely that the latter can use the money that they are loaned – and this arrangement violates the basic principles of finance theory. According to Thorsten Polleit, Degussa and University of Bayreuth, dropping the market interest rate to 0%, or even into negative figures, represents a policy that is incompatible with the free market economy. A negative real market interest rate terminates the interest relationship and eliminates the incentive to save and invest, leaving the economy to fall into capital consumption. Martin Klein, Martin Luther University Halle-Wittenberg, believes that we have not yet gathered enough experience of negative interest rates charged by the ECB and commercial banks to draw any final conclusions. In his opinion, the impact of the massive expansion of liquidity as part of the ECB’s monetary policy that will take effect in the spring will play a key role in shaping the future. He expects it to further lower interest rates.