The Problem with Too Much Money

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Don't put too much money here.
  • Why it matters

    Why it matters

    When business is good, companies have to put the money somewhere. But if banks start charging business clients penalty interest on deposits, companies will have to be creative or lose profits.

  • Facts


    • German companies seek far less credit than the banks can issue.
    • A spokesperson for Deutsche Bank, the largest German bank, did not rule out negative interest in the future.
    • For now, private customers don’t have to worry that banks will charge them penalty interest on deposits.
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For centuries, financial transactions have functioned according to the same principle: Whoever brings money to the bank receives interest, and whoever borrows money pays interest. But nowadays, German companies are experiencing an amazing turnaround when it comes to their money.

First, banks were unwilling to pay even the minimal interest that companies were used to, thanks to low-interest policies of the European Central Bank. Now companies might have to pay negative interest on their money – a parking penalty, so to speak, for big deposits.

The ensuing uproar is loud and indignant, from both large and mid-sized companies. “Clearly, we will not accept this and are ready to change banks,” said Sebastian Schwanhäusser, president and partner of Schwan-Stabilo, the German maker of writing instruments that is known for highlighter pens.

“If a bank were to demand penalty interest from us, I would immediately withdraw the money.”

Udo Möhrstedt, Founder and director of IBC Solar

Even if all banks demanded this sort of penalty interest, Mr. Schwanhäusser said his company would find a way around it. “We would focus even more intensively … on investing our money somewhere else and making a profit on it,” he told Handelsblatt.

Similar sentiments are common among other German companies. “If a bank were to demand penalty interest from us, I would immediately withdraw the money,” said Udo Möhrstedt, founder and director of IBC Solar, which develops solar thermal systems.

The penalty interest is an attempt by banks to avoid holding excessive liquidity, or too much money. That might sound like a good thing, but it’s not. Since June, banks have had to pay money if they store large amounts of money with the European Central Bank. This was done purposely by the ECB to encourage banks to lend out more money instead, marking the first time one of the world’s major central banks has actually charged banks to hold their excess cash.

But it’s a problem for banks that have far more deposits than the amount of credit they can issue. Now, when businesses want to park several hundred million euros for a short time, banks have a problem making use of the money – because German companies are seeking far less credit than the banks are offering. This is especially true in Germany, which has a healthier economy and banking sector than many of its struggling euro zone neighbors.

Financial insiders say that since the ECB began demanding penalty interest on large deposits from banks, the banks are now demanding the same of businesses that deposit a lot of money for a short time. The German Banking Association, which lobbies for private banks, credit unions and savings banks, said institutions active in the money markets are especially hurt by the ECB’s penalty interest on large deposits.

Bank Lending - Corporate Loans-02


But the banks’ most important clients, namely businesses, have little understanding or patience with this monetary policy. “Clearly, we will not accept penalty interest,” said Lukas Meindl, director and owner of Meindl hiking boots.

Some banks are expanding negative interest beyond short-term investments such as overnight money or one-week deposits. “Some banks are demanding penalty interest for deposits up to three months,” said Roland Pelka, finance director of Hornbach, a chain of home-improvement stores.

Speaking at the release of the company’s semi-annual report, Mr. Pelka said Hornbach has to find short-term investments for money it has on hand, which now amounts to €460 million ($584 million).

The banks are well aware of the explosive situation. A spokesperson for Deutsche Bank, the largest German bank, said it does not currently plan “to introduce deposit fees for the broad range of clients.” The bank said it offers various investment alternatives for business clients that need to deposit money. But the spokesperson did not rule out negative interest in the future.

If banks are reluctant to make clear statements about penalty interest, their customers are more forthcoming. “The truth of the matter is there are banks that charge penalty interest when a company wants to deposit money with them,” said a spokesperson for Bosch.

“At this time, we see no necessity for charging our mid-sized company clients negative interest for deposits.”

Paul Hagen, German risk officer for HSBC

Large German companies, such as Bosch and the retail-store firm Metro, take the issue seriously. Düsseldorf-based Metro – which includes Cash & Carry stores, electronics companies Media-Markt and Saturn, as well as the department-store chain Kaufhof – has already safeguarded itself against negative interest, said a company spokesperson.

“In some cases, we have come to an agreement with banks concerning a so-called floor,” said the spokesperson. “Interest is not permitted to fall below zero.”

Bosch, the auto parts and electronics giant headquartered near Stuttgart, has also looked ahead to assure that it doesn’t have to pay negative interest. “With no exception, Bosch’s liquid reserves are invested so they generate interest for us,” said a spokesperson.

Some firms are going their own way in order to avoid penalty interest. And in spite of continuing low-interest rates, they say they are managing their money successfully. Like the manufacturer of hiking boots, Meindl, many mid-sized companies prefer for now to reinvest money in their own businesses. Meindl, for instance, is building a new logistics center.

For now, private customers don’t have to worry about banks charging them penalty interest on deposits.

Other businesses are trying to insulate themselves from bank policies. They include Trumpf, the machine manufacturer based in Ditzingen, a town north-west of Stuttgart. This year, the company acquired a license to run a bank that provides integrated financial services. Würth, a large maker of screws and other fasteners, already has its own bank – the International Bankhaus Bodensee.

Big banks are closely monitoring these ambitious projects. One bank said the way business clients are treated has always been a sensitive area. “At this time, we see no necessity for charging our mid-sized company clients negative interest for deposits,” said Paul Hagen, German risk officer for HSBC, the international banking and financial-services institution.

But he said that could change. “We continue to follow the development of money-market rates in the euro zone – and we will react if need be,” said Mr. Hagen.

A source with Landesbank Baden-Württemberg said the bank doesn’t anticipate negative interest in the near future. But there are “arrangements in individual contracts about which we keep silent,” the source said.

For now, private customers don’t have to worry about banks charging them penalty interest on deposits. All the banks questioned by Handelsblatt were unanimous on that point.

“We do not expect the ECB’s step of lowering interest rates will lead to negative interest for private customers,” said an official with the German Banking Association lobby.

Individual banks agreed. A spokesperson at UVB Unicredit in Munich said flatly: “That’s not an issue for us.”


Elisabeth Atzler is a bank correspondent at Handelsblatt, Martin-Werner Buchenau covers the economy in Baden-Wuerttemburg, Frank M. Drost is a Berlin correspondent, Georg Weishaupt covers the wind and solar energy industry for Handelsblatt. To contact the authors:,, and

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