How long until banks start investing in vaults and just store millions of euros in hard cash to avoid negative interest rates?
Is their any regulatory reason against doing this (lets ignore the cost of securing such cash against physical risks).
Is their any regulatory reason against doing this (lets ignore the cost of securing such cash against physical risks).
Banks can also place money with other banks, but that is lending to other banks. Besides, this only shifts the problem to another bank, who now has cash on hand that'll be stored in the ECB if they don't do something else with it.
Besides that, banks can invest cash. But in a low-yield market where all stable investments give very low, or even negative, interest, that becomes less attractive.
Modern money is basically tree of connected electronic ledger. In the top of the tree is the central bank, lower there are the saving banks, lower all the firms and households.
If a bank has continual deposits at the ECB, and is paying money for the privilege, they might just decide to hold those euros in a vault. Once the vault becomes cheaper than the ECB, it should become a matter of time.
now, remember when everybody was wondering why they axed the 500€ bill?