Negative interest rates threat to Europe's financial stability

Negative interest rates threat to Europe's financial stability - Business Insider



From the article, and, by the way, this could happen throughout the world if we don't get more economic activity:

Negative interest rates erode the profitability of the banking
sector and pose a threat to financial stability. In exchange, they offer
an economic stimulus that is mild at best and that has actually been
seen to backfire in some regions. The world economy is once again
navigating in uncharted waters.

The article goes on to show that holding cash gives a nominal rate of zero even though inflation may push the real rate to negative. But once the nominal rate goes below zero, there could come a time when people no longer want to use banks and when banks no longer want to use central banks!



The result of this happening over time in the Eurozone is that the Eurozone banks are underperforming, hurting the economies there. And some banks in Switzerland have tried to offset loss of interest rate income by imposing higher mortgage rates!



So, the solution for many is to get rid of cash altogether, so that the negative rates can be forced upon the depositor.  That would not be implemented easily, so banks will be slowly bled to death. Therefore, a return to positive rates in Europe and Japan is very important to the health of banks and of the economies affected.





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