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Will UK Banks Begin Charging Treasurers for Deposits?

  • By Andrew Deichler
  • Published: 8/23/2016
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It just got more expensive for corporate treasurers to keep their organization’s money in the UK. Royal Bank of Scotland announced last week that it would begin charging some corporate customers for holding their cash.

The move comes as a result of the Bank of England’s decision to cut interest rates to 0.25 percent. BoE Governor Mark Carney has indicated that he wants to avoid what the European Central Bank and the Swiss National Bank have done and set rates below zero—a move that has led to multiple lenders in Europe charging customers for holding deposits.

Still, with RBS charging clients, there are fears that other UK lenders could do the same; the Bank of Ireland has already said it would begin charging large corporate clients for deposits before the year is out. Andrew Lowe, an analyst at Berenberg, told the Financial Times that more UK banks are likely to follow suit if rates fall further. “Everything that applies to Europe applies to UK banks as well,” he said.

A banker explained to FT that RBS plans to charge 70 of its institutional clients who trade futures and options, who thus hold cash on deposit as collateral. However, the bank has warned smaller business customers that it could potentially charge interest on commercial deposits if UK rates go negative.
 
One of corporate treasury’s core responsibilities is obviously protecting cash. Investing cash is typically done on the basis of risk versus reward returns, noted Andrew Burns, director, business development at C2FO. “Most treasurers and treasury policies are not prepared to accept levels of risk that results in loss of capital,” he said. “But the world has changed and the risk versus return correlation has been broken in the world of negative interest rates.”

With rates in Europe and Japan—and possibly now the UK—forecast to be negative well past 2019, many banks will being pushing this cost down to corporate deposits if they aren’t already. “The result is that deposits are actually being eroded,” Burns said. “Cash is being lost. The risk profile on supposedly one of the safest places for cash is extremely high given the loss is guaranteed and the return for that risk is zero.”
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