Zero Hedge: “Everyone thought that any major monetary policy surprises and/or capital controls today would come from Putin during his annual press conference. Boy were they wrong: just after 2 am Eastern, none other than the Swiss National Bank joined the ranks of the ECB in scrambling to stem the wave of capital flight, not to mention the cost of money, when it announced it too would start charging customers for the privilege of holding cash in its banks, when it revealed a negative, -0.25% interest rate on sight deposits: a step which according to the SNB was critical in maintaining the 1.20 EURCHF floor.
From the SNB:
The Swiss National Bank (SNB) is imposing an interest rate of –0.25% on sight deposit account balances at the SNB, with the aim of taking the three-month Libor into negative territory. It is thus expanding the target range for the three-month Libor to –0.75% to 0.25% and extending it to its usual width of 1 percentage point. Negative interest will be levied on balances exceeding a given exemption threshold.Zero Hedge: “Everyone thought that any major monetary policy surprises and/or capital controls today would come from Putin
Opinion: This is really not complicated. Think of the US Federal Reserve (Fed) and the European Central Bank (ECB) as a bank for banks.
Bank of America, Deutsche Bank, Barclays, J.P. Morgan, and other large banks use the Fed and the ECB much as we use a bank. They store large amounts of money, called reserves, at central banks and when they need loans they can borrow directly from them.
In a normal world, banks pay depositors an interest rate and then loan these funds out to businesses and consumers at a higher interest rate for a profit. The bank’s goal is to earn a “spread”, which is the difference between the small business loan revenue of 5% and their cost to depositors of 1%. In this example, the bank would earn a spread of 4% on the total loan value (5% – 1% = 4%).
In addition, the Swiss have inched negative rates to avoid hot money flowing in from other EU nations which would drastically appreciate their currency and cause a severe disruption in exports.
The Fed has maintained a Zero Interest Rate Policy (ZIRP) for over five years in order to help repair our economy from the damage caused by the financial crisis. The goal of ZIRP was to keep interest rates so low that companies would be enticed to borrow super cheap money to hire workers and grow their businesses.
So if you are confused as to why banks find it necessary to take such drastic measures with all the positive economic news being reported, it is because the global economy, especially the EU, Russia, and China are actually incredibly weak.
And that is why the US dollar is strong; the cleanest’ shirt in the dirty laundry bag.
From a Biblical view, the Rider on the Black Horse (Revelation 6:5-6) bringing economic collapse is in view. But remember Revelation 6, the beginning of the 7 year tribulation period, comes after Revelation 4:1, the rapture.
(Thanks to Vason for editing and adding to this post)