More Signs of Cash Leaving Germany After ECB Negative-Rate Tweak

(Bloomberg) --

Further evidence emerged Monday that ECB rules designed to alleviate the drag of negative rates on bank profitability are pushing deposits out of Germany into more cash-strapped areas.

Data for the end of October shows the Bundesbank’s Target2 balance dropped by 78 billion euros ($86 billion) while that of Italy rose 48 billion euros and France’s grew by 19 billion euros. The implication is that tiering is prompting German lenders to park their deposits at under-allocated banks in Italy and France.

Under tiering rules introduced by the European Central Bank, lenders can have six-times their minimum reserve requirements remunerated at 0%, rather than the -0.5% deposit rate. Banks that have total deposits lower than that threshold are in a position to attract deposits from other banks which exceed it, which seems to be what’s driving the shift in balances at the end of October.

Full disaggregated balance sheet data for national central banks in the euro area is published tomorrow, which will give a clearer picture of what’s going on.

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