ECB: Negative rates cannot go on forever – Danske Bank

Research Team at Danske Bank, suggests that the weakness in the Eurozone’s banking sector has been linked to the ECB’s negative deposit rate, which leaves banks with an increasing cost as long as excess liquidity continues to rise.

Key Quotes

“According to Draghi, ‘bank business models should be able to withstand periods of low interest rates’. Nevertheless, he concluded that ‘I think the negative interest rate is not something that can go on forever’.

The ECB might consider reducing the cost to the banking system either by hiking rates early or as in Denmark, introduce a two-tier deposit rate system where some of the excess liquidity is not placed at negative levels.”