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Comment by marcrosoft | Hacker News Reader

Simply go where savings are better (like US treasuries). The yields will self correct.

The whole point of keeping all that cash in the bank is to avoid risk. Few people can deal with exchange rate risk.

In fact the EU fiscal crisis came from people basically doing what you said: putting their euros in Greek and Spanish banks that paid higher interest than German banks were. They assumed they’d have no exchange rate risk (they didn’t, except at a macro level) but also assumed they’d have the same bank regulation and guarantees they had at home. Oops!

For individual savers they did have the same guarantees. The EU operates a scheme that requires members to offer some amount of guarantee denominated in Euros. Brits whose local banks failed were bailed out almost immediately by the British government, in full - far more than was legally required, but every individual with an EU account got their legal due eventually. In fact some of the nasty corner cases were non-EU banks that outsiders would think of as British but are legally not, based on Man (an island between the mainland and Ireland) for example. Those had "guarantees" that are worthless because they're underwritten by a tiny island that can't pay. If London or even Madrid owes you money they're ultimately good for it. But Douglas (the closest the Isle of Man has to a city) doesn't have any money, so their guarantee is worthless.

That would introduce an exchange risk for the savers. Euro and USD can fluctuate quite a bit between them.

There's no complete escape from exchange rate risk. Keeping it in Euro puts you at risk for all direct and indirect exchanges with countries not using the Euro as currency.

Can't you fairly easily hedge against exchange rate risk? Costs money though.

I'm wondering why some German banks don't do something like that? Currency risk, maybe?

Banking regulation tightly manages the level of risk permitted to deposit-taking institutions.

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