The Wall Street Journal reports on banks in Europe facing a "previously inconceivable problem"
- In countries such as Spain, Portugal and Italy the base interest rate used for many loans, especially mortgages, is Euribor, which stands for the euro interbank offered rate
- Euribor is based on how much it costs European banks to borrow from each other
- This benchmark and others like it have been falling sharply, in some cases into negative territory, since the European Central Bank introduced measures last year meant to boost the eurozone economy
- Because banks set interest rates on many loans as a small additional percentage above or below a benchmark such as Euribor, the tumbling rates are leaving some banks facing the paradox of actually owing interest to borrowers
- At least one bank, Spain's Bankinter SA, has been paying some customers interest on their mortgages by deducting that amount from the principal the client owes
Got that?
OK ...
Banks, hoping to avoid the expense of having to pay their borrowers, are turning to central banks for guidance.
Turning to central banks for guidance? Really, chaps, how hard can it be?
Just take a leaf out of the Australian banking handbook and levy a fee!
How about a "Negative interest rate fee"? Hundred bucks/euro a month or whatever.
You're welcome.
