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by saberdancer 1993 days ago
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.
2 comments
roenxi 1993 days ago
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.

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literallycancer 1993 days ago
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.
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jobigoud 1993 days ago
> 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.

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saberdancer 1993 days ago
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.

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