Negative interest rates threaten the financial system

In a negative rate environment, banks must pay to hold loans and securities. They would be punished for providing credit, which is the lifeblood of an economy

4th September, 2019
ECB actions worry German banks.

Negative interest rates represent a threat to the financial system. To understand why, let’s start with the existing fractional reserve banking system, which is more than a century old.

For every euro or dollar that goes into a bank, some set amount (usually about 10 per cent) must go into a reserve account to be overseen by the central bank. The rest is either lent out or used to buy securities.

In other words,...

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