Banks Charge Negative Interest to Hold Swiss, Danish Currency (STT, BK)
Oct 9th 2012 8:41AM
State Street Corp. (NYSE: STT) and Bank of New York Mellon Corp. (NYSE: BK) will begin charging depositors to hold Danish kroner and Swiss francs. The two custody banks will charge money managers, insurance companies and pension funds a negative interest rate to hold onto the customers' cash.
State Street will charge 0.75% annually to hold deposits of Danish kroner beginning November 1 and plans to charge 0.25% for Swiss francs, according to a report at Bloomberg News. The two countries have cut their own interest rates to zero or less in an effort to keep their currencies from appreciating as investors dump euros and look for safer, more stable investments. The Swiss, for example, pegged the franc to the euro in September of 2011 and has been defending the franc ever since.
The charges by the two custody banks are driven by central bank policies in both Denmark and Sweden, both of which have indicated that benchmark rates will remain low for an extended period. If the banks are going to hold onto a customer's cash for a long time, the banks want to be compensated for it. Sort of like a big safe deposit box.