In a world without friction and where monetary policy is transmitted perfectly, banks operating in jurisdictions with negative rates should charge their customers a fee for their deposits and pay those who ask for a loan (to those who borrow) . This world upside down, compared to what was known so far, is starting to poke its head in Switzerland, the first country to test the negative rates back in 2014.
Zuger Kantonalbank: "In individual cases, we grant zero or negative interest loans to institutional clients to finance projects with the corresponding guarantee"
Switzerland's experiment with negative interest rates begins to show certain interesting consequences in the mortgage market, at least for large clients. Some Swiss financial institutions have admitted that they actually pay their clients for borrowing.
Located at -0.75%, Switzerland has the lowest reference interest rate within the G10, while the profitability of the country's 10-year bonds offer a negative return of -0.67%, taking the entire curve of its sovereign debt in negative less than 50 years.
However, although the cost of borrowing for homeowners has decreased, the evidence suggests that so far the types of mortgage loans have remained at a positive level for most families. But for a lucky few, however, it seems that the cheap money initiative takes effect.
"In individual cases, we grant short-term loans with zero or negative interest rates to institutional clients to finance projects with the corresponding guarantee," says Zuger Kantonalbank spokeswoman Carmen Wyss.
The issue of negative interest rates has returned to the foreground now that central banks are preparing to reopen the tap in terms of stimuli and further declines in rates. Banks have been complaining about them for a long time and UBS Group chief executive Sergio Ermotti warned Tuesday that more flexibility can generate asset bubbles.
The Tages-Anzeiger newspaper was the first to report loans with negative rates, citing the spokesperson for the cantonal bank of Grisons. This expert ensures that sometimes these types of loans were granted to institutional clients whose financing needs are large and short-term.
The types of home equity loans in the cantonal banks of Zurich, Bern and Geneva still have rates that are above zero.