Riksbank Has Cash Stash to Handle Potential Negative Rate Run

by Amanda BillnerJohan Carlstrom

Nordea Bank AB chief executive officer Christian Clausen said Jan. 28 that the Nordic region's biggest bank will eventually have to start charging clients to deposit money in markets where central bank rates are negative. Photographer: Casper Hedberg/Bloomberg

(Bloomberg) -- Sweden’s central bank says it has enough cash in its coffers should negative interest rates cause depositors to withdraw their funds from banks.
“The Riksbank always has a cash storage,” Christina Wejshammar, head of the bank’s cash and payment systems unit, said in an e-mailed response to questions. “The amount of cash is big enough for us to feel safe in case demand for some reason would increase.”
The world’s oldest central bank is navigating unchartered territory after in October cutting rates to zero to prevent deflation from becoming entrenched. The bank meets tomorrow to decide on its next rate move and has said that cutting its benchmark to a negative is a possible scenario.

Should negative rates persist for a longer period lenders including Nordea Bank AB have flagged they may start charging customers to keep their deposits. That could prompt customers to
withdraw their savings.
SEB AB, Sweden’s fourth-largest bank, this week raised the possibility that the country could quickly find itself in a cash squeeze. The average value of circulating notes and coins last year was 80 billion kronor ($9.5 billion), down from 106 billion kronor five years earlier, according to central bank data.
Cash only represents 3 percent of the total money, according to Robert Bergqvist, chief economist at SEB.
“Even if the Riksbank started printing money, it would be hard to get hold of money,” said Bergqvist, also a former central bank analyst. The amount of bills may also shrink this year since old notes are being replaced, he said.

The Mattress

Lenders such as Swedbank AB and Svenska Handelsbanken AB have warned the Riksbank about the implications of negative rates. Michael Wolf, chief executive officer of Swedbank, the country’s biggest mortgage lender, said in a Feb. 3 interview that rates below zero would pose a risk to profitability and the ability to lend.
“We want, of course, to protect ordinary savers from negative rates,” he said. “We don’t think they should take their money out and put them under the mattress, but it depends a little bit on how things turn out.”
Nordea CEO Christian Clausen said Jan. 28 that the Nordic region’s biggest bank will eventually have to start charging clients to deposit money in markets where central bank rates are negative. “We can’t pay interest on an account and then deposit the money at negative rates in the central bank,” Clausen said. “It simply won’t fly.”

Very Solid

In Denmark, where the central bank last week lowered its benchmark deposit rate to a negative 0.75 percent, no retail banks have so far resorted to charging depositors. Cash levels in Denmark are roughly on level with Sweden, given the size of the economy, while in Switzerland, where rates are also negative, the amount in circulation is almost seven times bigger.
SEB predicts that the Riksbank will cut its key rate to minus 0.1 percent and this month reintroduce the fine-tuning adjustment rate, which would mean that the effective deposit rate for the banking system will be minus 0.2 percent. That will probably not be enough to have any major impact on deposit rates, he said. For that “the Riksbank probably needs to go one step further,” he said.
As to how much cash the Riksbank has squirreled away, it won’t say.
“For security reasons we can’t say how big it is or where it’s being stored,” Wejshammar said.