Who could have predicted that in 2016, following the disasters of 2007-9 that the main banks in the UK would be planning for negative interest charges against their business customers. Never, absurd, I hear the cries of common sense but sadly true as many
business customers are finding out today in their post.
I quote "The interest rate we pay you for any money you have in your account (unless the interest rate for the relevant currency is 0% when we would not pay you anything or if the interest rate for the relevant currency is below 0%, in which case you may
have to pay us)."
Going further it states "if you have to pay us credit interest we will only deduct this from your account" and "reference rate now means for amounts denominated in sterling, the Bank of England base rate.
I await with "interest" the next arrival of my postman with a similar letter confirming that overdrafts, business loans, mortgages, consumer credit card interest rates (the latter are at a great rate of 18.9% today) are being reduced to reflect the subsidy
that I am now required to pay my bank to allow them to lend my money to their other customers.
As I understand it, ordinarily within the new liquidity rules and ratios in Basel III a reduction of interest rate to negative would not normally impact on capital and liquidity? These are of course the rules that are designed to prevent or reduce a re-occurrence
of 2007-9.
Negative Interest does of course impact on profitability, but in this case just for the banks themselves, because the central bank will no longer be paying them base rate (0.5%) on their reserve account balances. So those business that are successful today,
and may be fortunate and being paid 0.25% on their bank balances, may end up subsidising the sustained profitability demands of their bank, for zero return.
The reward for this "customer loyalty" however is just a nice booklet titled "Notice of Variation" and the possible provision of an unauthorised, unplanned and interest free overdraft to their own bank in due course.
What happens however if the collection of the negative interest event creates an unplanned overdraft for that customer on their current account which is chargeable at 15%, plus £25 for the "you are in the naughty corner letter"?