The April 2016 numbers are out for the deposits in Europe and I can say that the ECB can lower interest rates some more, because I don’t see any deposit flights at all.
ECB
ECB cuts interest rates: No bank deposit flights yet
The ECB cut interest rates to -0.04%.
This is a real problem for banks as their profit margins get squeezed. Banks will not gain a lot of money when they can’t lend at normal rates. On top of that, some European countries like Belgium have a minimum deposit interest rate that needs to be paid to customers like us (0.11%). So banks get less money from loans but still need to pay depositors 0.11% interest.
Another problem is that depositors will think: “Hmm I can’t earn any money on my deposits, so I’ll take the cash out of the bank.” And if we ultimately see negative deposit rates, people will certainly take their cash out of the banks.
That’s why it’s very important to see what the deposits are doing.
I created a chart of the deposits of Euro Area Residents, to be found here.
I had expected that when the ECB cut interest rates below zero since 2014, that we would see a deposit flight happening. But we actually see more deposits on the banks. Very counterintuitive and needs to be monitored in the next months.
ECB $1.3 Trillion Money Printing Visualized
The ECB announced QE of 50 billion euro/month, probably for 2 years. That amounts to 1.1 trillion euros or $1.3 trillion dollars.
It looks something like this. The Fed, the ECB and the BOJ will all happily intersect with each other in 2017.
If everything goes as planned, this is very bullish for the U.S. dollar. Considering the fact that global money printing has just increased through the ECB, gold will benefit greatly.
As always, European bonds will not be a good investment when the ECB prints money, because the currency of those bonds gets devalued, so I would definitively avoid that.
For all those Europeans who bought gold in advance, congratulations!
We’ll see what happens tomorrow…
Negative Interest Rates: First ECB, now SNB
First the ECB lowered interest rates on deposits to -0.1% in June 2014. Now the SNB lowered interest rates on its deposits to -0.25%. Commercial bank deposits will follow soon and what would you do when you are charged for depositing money in your bank?
All of this is because the yield curves are flattening, and yields cannot be too close to each other, or we get a recession.
The effect of this drop in deposit rates should be that eventually investors remove their money from those banks and invest it in something else. Lending and spending will increase and the bubble becomes an even bigger bubble.
I do not need to tell you this is good for gold. In fact, denying the Swiss gold referendum is actually bullish for gold as the SNB can do whatever it wants now…
1) Yields go down due to lower interest rates.
2) CPI goes up through inflating the bubble.
European Bank Deposits Once Again Declining
As everyone already knows, the LTRO from the ECB this September was a complete failure.
So that means liquidity for the European banks has not improved a lot. They expected that European banks would take credit from the ECB of €385 billion, but instead it became €82.6 billion across 255 counterparties. Excess liquidity has jumped up a bit from €77 billion to €122 billion, but it’s still not enough to be safe in my opinion. I wrote about that here.
This is also being confirmed in the deposits at the European banks. The latest number from August 2014 showed a decline in deposits.
And so excess liquidity keeps drying up. Let’s wait till the second LTRO in December and see how that goes. They can’t wait any longer as Europe is now entering a deflationary cycle, probably along with a lot of unemployment claims.
Bank Deposits Update and ECB QE
Ok, so when the ECB prints money, we will see bond yields rise in the eurozone and we will see deposit rates go back up, when banks get more liquidity.
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This chart below will reverse itself and we see it already for Portugal and Spain.
ECB Quantitative Easing 2014
The eurozone is on the verge of entering a deflationary period as we can see on the inflation chart below from Tradingeconomics. The inflation rate for the eurozone came in at just 0.4% for August 2014.
The chart below from the ECB shows long term interest rates with maturity of 10 years. As you can see, bond yields are plunging, indicating subdued growth expectations.
‘la Caixa” research recently put up a chart that shows that excess liquidity in the eurozone is drying up. We are now going under the 150 billion euro threshold level of excess liquidity, which is very important.
European Bank Deposits Update: Greece sees outflows
This week we had an update of the deposits at the European banks. Deposit outflows continue. What strikes me most is that we see inflows to safer countries (Netherlands, Germany, France) and outflows of the periphery (Italy, Greece, Ireland).
Most curiously, the largest deposit outflow can be seen in Greece (red chart). We peaked out in Greece deposits after a series of bailouts starting in 2010. Ever since the debt restructuring in 2012, the deposits kept going down, which collapsed the trade credit.
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| Bank Deposits Eurozone Periphery |
As a result, (especially) imports and even exports are collapsing. This is the way of restructuring. Bailouts in 2010 strengthened exports. Restructuring of debt starts in 2012, bailouts are gone, exports collapse.
And the best thing is, the debt hasn’t gone away, it’s all there.
Negative ECB Deposit Rates
The effect of ECB negative deposit rate
The recent news about the ECB imposing a negative deposit rate in June 2014 has spurred a new trend. The deposits at the European banks is seeing outflows.
Who would want to hold deposits with negative rates? They will of course take their money out and hunt for higher yielding assets.
See what happens to the deposits of the periphery in Europe on this chart:
Correlation Economics (Backup) 