RBS Now Set to Charge Financial Institutions To Hold Cash

The Royal Bank of ScotlandIt has been announced by the RBS (Royal Bank of Scotland) that they would be charging a fee from major financial institutions for holding onto cash on their behalf. Before this, no bank has ever charged for deposits. After the Brexit vote, Bank of England has announced rate cutting to ward off recession. The bank has reduced the interest rates to 0.25% from 0.50%.

Mark Carney who is the governor of the Bank of England does not support the negative rates at all. But still, it is estimated that 70 RBS customers will have to pay a fee for bank holding collateral cash required for products trading like Futures.

An RBS spokesperson has made a statement:

Until recently, RBS has applied a 0% floor to the overnight rate charged for deposits required by clearing houses for futures trades. However, due to the sustained low-interest rate environment, RBS will now be passing the cost of holding such deposits onto a limited number of our institutional clients. Futures are entered into by sophisticated financial investors looking to hedge risk.

Economy and Stocks

This changed policy will not affect the small customers but the large customers will be badly affected by this policy who holds collateral in both currencies – euro and sterling.

The negative rates will have a bad impact on the banks when they deal with the European Clearing House as Europe has got negative interest rates. Royal Bank of Scotland now has to pass on the cost of these charges to its customers which are made by the clearing houses.

Last month RBS has warned its 1 million customers through written notice that it will charge a fee for holding their cash. This charge is applicable only when the interest rate will fall below zero. A senior analyst at Hargreaves Lansdown, Laith Khalaf that the decision of negative interest rates on personal deposits was not immediately likely for the small savers.

In order to avoid the holding charges applied by central banks, many institutes in Europe will now look forward to storing cash in high-security storage vaults. A reinsurance company Munich Re is said that it would be storing money in that manner.

Ulster Bank which is an RBS part has started charging negative interest rates from some of its corporate clients. Another institution named Bank of Ireland will be charging a fee from large companies for holding on to their cash reserves. A negative interest rate of 0.1% will be charged on all deposits which are more than 10 million Euros and this will come into effect from October this year.

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