German watchdog opposes ban on bank charges for customer deposits

FRANKFURT (Reuters) - Germany’s financial markets watchdog would not support a ban on banks charging retail customers for storing their money, its president said on Thursday.

FILE PHOTO: Felix Hufeld, President of Germany's Federal Financial Supervisory Authority BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) attends the G20 Germany 2017 Conference in Wiesbaden, Germany January 25, 2017. REUTERS/Ralph Orlowski

Banks in Germany and elsewhere in Europe are under pressure from low or negative interest rates and this has prompted debate about whether they could pass on to retail customers the charges they currently face when they deposit cash with the central bank.

BaFin president Felix Hufeld, asked about banning banks from charging customers for so-called negative interest rates, said he would not advise politicians to go in that direction.

Hufeld’s comments at an industry conference on Thursday highlight worries about the impact of low profitability on banks and the wider financial system.

His remarks also follow similar comments from Germany’s central bank.

But Bavaria’s premier Markus Soeder has suggested banks be prohibited from charging retail customers negative interest rates for accounts of less than 100,000 euros (£89,745).

Since 2014, the European Central Bank has charged banks to store their cash, with the so-called deposit rate currently at minus 0.4%.

Banks in Germany paid 2.4 billion euros to the central bank to hold cash in 2018, the German government said in response to a parliamentary enquiry on negative interest rates.

Some banks have passed on that cost to their corporate and wealthy clients, but banks have so far shied away from charging regular savers.

The German government in Berlin is examining whether such a ban would be legal. But Germany’s finance minister Olaf Scholz warned bankers against passing costs along to their customers.

“I think bank boards and managers are smart enough to know what sort of reaction this would trigger,” he said at the same conference.

Reporting by Tom Sims, Patricia Uhlig and Hans Seidensteucker; Editing by Tassilo Hummel and Jane Merriman