#ECB studies tiered rate but banks' woes go beyond that - de Guindos

The European Central Bank is studying ways to cut its charge on banks’ deposits but eurozone lenders should look closer to home for the causes of their meagre profits, ECB Vice President Luis de Guindos said this week, write Balazs Koranyi and Francesco Canepa.

With growth and inflation in the eurozone slowing, the ECB has shelved plans to raise interest rates this year, leaving banks, particularly in France and Germany, bracing for yet more losses on the excess cash they deposit at the central bank.

Confirming a Reuters report from last week, de Guindos said the ECB was looking at ways of “tiering” the negative interest rate that banks pay on the idle cash, although no discussion had yet taken place among policymakers.

Various forms of tiered deposit rates were implemented in countries from Japan to Switzerland to exempt banks from paying a penalty charge on a portion of their deposits.

“We are continuously analyzing the possibilities, alternatives in terms of tiering because in other jurisdictions they were implemented,” de Guindos told lawmakers in the European Parliament. “But so far we have not taken any decision.”

Negative interest rates have been a feature of central banks’ response to the financial crisis that started a decade ago and have been credited with helping stave off the threat of deflation in 2014-16.

The Spaniard added bankers should blame high costs, excessive competition and unpaid loans for the low earnings of their firms rather than the ECB’s policies.

“The low profitability of the banks clearly goes beyond the potential impact of negative interest rates. I think that the low profitability of banks in Europe has to do with structural factors,” he said.

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