One of the largest banks in Europe, Germany’s Commerzbank, is reportedly considering hoarding billions of euros in cash in vaults, rather than depositing it with the European Central Bank.
Several people familiar with the matter say that Commerzbank is looking to store the cash in order to avoid paying to hold the cash with the ECB, thanks to the bank’s negative deposit rate for lenders, according to a report from Reuters.
No decision has been made yet, according to Reuters’ sources, but Commerzbank has discussed the idea of vault storage with the German authorities. It is not understood exactly how much the bank would look to store in its own vaults should it do so.
Commerzbank is part-owned by the German state, which has in the past been critical of the ECB’s negative rate policy, with Finance Minister Wolfgang Schauble particularly vocal about what he sees as the ECB’s failings. In April he said negative rates were causing “extraordinary problems” for Germany.
Should Commerzbank take this step, pulling money away from the ECB and literally storing it in vaults would likely be seen as a huge protest against the ECB and its president Mario Draghi.
The ECB has been driving rates further below zero since it first introduced the negative deposit rate in the summer of 2014, with the current deposit rate for banks standing at -0.4%. The basic idea governing negative rates is that by being given a penalty for storing cash with the central bank (in this case the ECB) banks will be spurred into lending their cash, which in turn helps to boost inflation. So in other words, if a bank decided to not lend that money, it would mean it would be losing cash each month by just letting it sit there.
So far, that idea has yet to manifest itself in the eurozone, with inflation still hovering just about zero. Banks are also storing more and more money with the ECB. There is currently around €850 billion (£664 billion; $967 billion) of bank money held by the ECB.
Draghi has not ruled out taking rates even lower, although earlier on Wednesday bank official Francois Villeroy de Galhau, a member of its governing council, said that there is “a limit” to how low negative rates can go.
Storing substantial amounts of physical cash would be hugely challenging for Commerzbank. Reuters said that €1 billion (£780 million; $1.13 billion) of €200 (£156; $227) notes would weigh more than five tonnes.
Commerzbank is one of many European banks struggling right now, and in May reported a 52% drop in first-quarter net profit to €163 million (£127.4 million, $185.7 million).
The ECB declined to comment on the matter, while Commerzbank said it has no cash in storage right now and gave no comment on whether it may do so in future.