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10 June 2016

ECB's Constancio: Euro zone banks 'very far' from switching to cash:

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Euro zone banks are benefiting from the European Central Bank's sub-zero interest rates and they are "really far" from converting their deposits to cash, ECB Vice President Vitor Constancio said.

Banks, particularly in Germany, have complained that the ECB's charge on deposits is eating deep into their profits and Commerzbank is even considering storing euro notes to avoid parking money with the ECB at a penalty rate.

Constancio, however dismissed the chance that lenders would switch to cash en masse, arguing that even banks in Switzerland, where the charge on bank deposits is even higher, have not cut their deposits.

Still, he accepted that the ECB's negative deposit rate policy had its limits because banks could "at a certain point" start storing cash to avoid the penalty rate.

"The policy has costs... and limits are related to cash preference, which could start at a certain point," Constancio told a conference in Germany. "But we are really very far away from those levels."

The ECB has charged banks for depositing cash for the past two years and bought 1 trillion euros worth of assets to boost inflation, which has undershot its target for 3 straight years with forecasts suggesting several more years of misses.

Constancio argued that declining funding costs, stable interest margins, one-off capital gains and rising volumes have more than offset the negative impact of ultra low rates.

Full article

© Reuters

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