[oblongx]

How does the bank make money when it's zero interest loan? Serious question, the article didn't mention anything about it. I'm sure it still costs a few bucks in fees to get the loan but isn't the interest where the real profit is?

[saberdancer]

Banks wouldn't offer a loan for zero interest if they have to "buy" money for interest. In these type of situations, they are either lending at negative interest rate from the central bank, or they are paying interest to central bank for "safekeeping" (central bank is at negative interest rate) or consumers are keeping money in banks at negative interest rate (less likely).

What makes money for the bank is the difference of interest rate between money they buy and money they sell. Whether one or both are negative or positive doesn't really matter. Relative difference is what matters.

[roenxi]

Loans have a cost. If the banks can borrow at negative interest rates they are strictly better borrowing the money and not lending it out compared to a 0% loan. Any profitable plan with a 0% loan in it would in theory be more profitable without the loan.

In econ-101 it doesn't matter what the spread is, it isn't in itself rational to lend at 0%. That is taking on risk with no gain.

There must be some strange contortions in place to make this work. Whatever a "loan" is these days is going to be a totally regulatory construct with little connection to what they used to be way back when.

[literallycancer]

Pretty sure you don't get to borrow from the central bank unless your product portfolio includes the retail products the central bank or government feels should be available to consumers. So you can't just borrow without serving retail.

[jobigoud]

> What makes money for the bank is the difference of interest rate between money they buy and money they sell.

But they do not have to buy the same quantity of money as to what they are selling. When making a loan money is created out of thin air.

[saberdancer]

I know this is often said, but I do not think it is true.

They do not have to hold deposits in the amount they lend out, but they do have to have the money. They have to hold back a fraction of the deposits.

If money was created out of thin air (in consumer banks), any loan with any interest rate (even negative one) would be highly profitable.

I am not talking about central banks.

[nelgaard]

It is not banks. It it credit unions and based on bonds. (banks are sometime affiliated with credit unions with similar names)

The bonds have a 0% coupon but the value is now 96.725: https://www.nordea.dk/privat/produkter/boliglaan/Kurser-real...

So the buyer of the house (seller of the bonds) would have to sell 3.3% extra bonds. And the buyer of the bonds gets a discount.

As for why anyone would buy such bonds: The system is considered very stable (no US sub-prime mess) so if you have a lot of money, do not want to take risks (stocks and forex) and your bank charges you negative interest, it might make sense.

As for the house prices. Yes they are going up. But you still have to pay back the money in 20 years. Or remortgage, but then it might not be at 0%.

Another thing to consider is that property taxes are based on a public valuation that have some correlation with what you would be paying for a house (valuations is big mess now, but it will probably be fixed in less than 20 years).

[coliveira]

Banks don't make money on interest rates, but on spreads. They lend the money at 0%, but in Europe banks can borrow at negative interest rates.

[tomatocracy]

Some banks can borrow some of their funding requirements at negative rates for short periods of time.

Banks fund themselves using a variety of sources - bonds and money market instruments (of various types), equity, deposits, past profits (which is really the same as equity) and various central bank mechanisms. Of those the only ones where there is a decent chance of funding at negative rates are bonds/money markets and central banks.

Bank profits have been squeezed by negative rates precisely because they've been forced to pass on more of the rate reductions to borrowers than they've been able to recapture for themselves.

[coliveira]

But modern banks don't stay with a mortgage loan for long periods of time. Thanks to the "miracle" of derivatives, mortgage loans are repackaged and sold to other institutions, so the risk they carry is very small compared to the old times.

[tomatocracy]

Sorry, that's just not true, at least for mainstream large European banks.