Bitcoin Forum

http://www.ft.com/cms/s/0/b1d409d0-5399-11e3-b425-00144feabdc0.html

Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves.
Depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households.
The warning by bank executives highlights the dangers of one strategy the Fed could use to offset an eventual “tapering” of the $85bn a month in asset purchases that have fuelled global financial markets for the last year.

Minutes of the Fed’s October meeting published last week showed it was heading towards a taper in the coming months – perhaps as soon as December – but wants to find a different way to add stimulus at the same time. “Most” officials thought a cut in the interest on bank reserves was an option worth considering.
Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4tn in reserves they hold at the Fed would lead them to pass on the cost to depositors.
Banks say they may have to charge because taking in deposits is not free: they have to pay premiums of a few basis points to a US government insurance programme.
“Right now you can at least break even from a revenue perspective,” said one executive, adding that a rate cut by the Fed “would turn it into negative revenue – banks would be disincentivised to take deposits and potentially charge for them”.
Other bankers said that a move to negative rates would not only trim margins but could backfire for banks and the system as a whole, as it would incentivise treasury managers to find higher-yielding, riskier assets.
“It’s not as if we are suddenly going to start lending to [small and medium-sized enterprises],” said one. “There really isn’t the level of demand, so the danger is that banks are pushed into riskier assets to find yield.”

The danger of negative rates has deterred the Fed from cutting interest on bank reserves in the past. If it were to do so now, it would most probably expand a new facility that lets banks and money market funds deposit cash at a small, positive interest rate. That should avoid any need for banks to charge depositors.
About half of the reserves come from non-US banks that do not have to pay the deposit insurance fee. Their favourite manoeuvre is to take deposits from money market funds and park them overnight at the Fed, earning millions of dollars risk-free. Cutting the interest on reserves would stop that.
Lowering interest on reserves would also affect money market funds, said Alex Roever, head of US interest rate strategy at JPMorgan.
“[It] would decrease the incentive for those banks to borrow in the money markets, which in turn could leave money market funds short of certain investments and force them to bid up the price of their next best options,” he said.
Richard Gilhooly, strategist at TD Securities, highlighted some benefits to the Fed from the possible cut: “[It] would not only anchor short-term rates near zero, it also stands to boost the profits for the Fed as they pay less interest to banks,” he said.

so they are basically holding the consumers hostage.. because they aren't getting enough free money. fucking banks.

The fed is the problem.

no, both the banks and the feds are the problem.

And even if people were to pay to deposit they would still lose their money if the bank goes belly-up?

Lovely...

Bitcoin user not affected ^_^

It seems they don't deem bitcoin as a threat yet. If they do actually decide on charging for deposits, should we expect a burst of interest for Bitcoin with a subsequent explosive growth of its exchange rate? Somebody has recently bought about 1,6% of all coins out there... Is he trying to get ahead of the pack?

I think it's very likely that's what will happen, everyone will start getting sick of the banks and just start buying Bitcoin instead.

Not quite so... "Banks say they may have to charge because taking in deposits is not free: they have to pay premiums of a few basis points to a US government insurance programme". So banks would continue to pay premiums to the FDIC which in theory provides deposit insurance. Could it actually help if a multitude of banks become insolvent under a massive bank-run remains to be seen. At least FDIC insurance is additionally assured by the government...

Bitcoin user is still a US citizen (or whatever country) , if this is going to affect the economy you're going to be affected too.

National banks and normal banks alike will definitely got to battle with bitcoin, most likely trying to legislate but also buy giving bad press. It is indeed self serving, there livelihood is at stake. Question is what can they really do about it, haven't seen anything concrete. And maybe it was a bank or banker that bought the 1,6% to hedge its bets (not sure it was a purchase though, could also have been moving around of a trading house or something)

Bitcoin is a currency or a commodity or whatever ..
You still need banks for loans , and bitcoin is not designed for this.

Yes, but we all implicitly suggest that Bitcoin user will be affected only in a positive way, i.e. by sharpening and deepening his competitive edge over fiat users in the case of banks going underwater...

what do you mean by banks going underwater? :D
I doubt this could really happen if it means what I think it means :D

Just as with humans, i.e. drowning in debt and being unable to fulfill their financial obligations under, say, a massive bank-run... Are you ready?  ;D