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RBS Now Set to Charge Financial Institutions To Hold Cash

Royal Bank of ScotlandThe Royal Bank of Scotland (RBS) has announced that it will be charging major financial institutions a fee for holding on to cash on their behalf. This is the first time that a bank is charging for deposits since the rate cut announced by Bank of England earlier this month to ward off a recession in the aftermath of the Brexit vote. The Bank slashed interest rate from 0.50 percent to 0.25 percent.

Mark Carney, governor of the Bank of England has indicated that he does not support negative rates. But despite this around 70 customers of the RBS would have to pay a fee for the bank holding collateral cash required for their trading in products like futures.

In a statement, an RBS spokesperson said,

Until recently, RBS has applied a 0% floor to the overnight rate charged for deposits required by clearing houses for futures trades. However, due to the sustained low interest rate environment, RBS will now be passing the cost of holding such deposits on to a limited number of our institutional clients. Futures are entered into by sophisticated financial investors looking to hedge risk.

Economy and Stock

While small customers would not be affected by the changed policy for holding cash, the new policy could affect large customers who hold collateral in both currencies – sterling and euros.

Banks are impacted by negative rates when they deal with European clearing houses as Europe has negative interest rates. RBS will now be passing on the cost of such charges made by the clearing houses to its customers.

RBS had written to over 1 million customers last month warning them that the bank could end up charging them a fee for holding on their cash. This charge would be applied only if the interest rates fell below zero. Laith Khalaf, senior analyst at Hargreaves Lansdown said that the direction of such decisions was concerning for small savers although negative rates on personal deposits was not immediately likely.

Several institutions in Europe are now looking at storing their cash in high- security storage vaults in order to avoid holding charges levied by central banks. Munich Re, a reinsurance company is said to be storing euros in such a fashion.

Ulster Bank, which is a part of the RBS is already levying negative rates on few of its corporate clients. The Bank of Ireland has also said that it will start charging large companies a fee for holding on to their cash reserves. The has announced that a charge of 0.1 per cent will be applicable for deposits which are more than €10 million and this will come into effect from October onwards.

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