Brought to you by Investec Switzerland.
It’s a sign the world is getting used to negative interest rates when what once seemed bizarre starts looking like the norm.
Consider Switzerland, where more and more companies are taking out insurance policies to protect their cash hoards from theft or damage.
“Because of the low interest rate level, we note increasing demand for insurance solutions for the storage of cash,” said Philipp Surholt at Zurich Insurance Group AG, among underwriters reporting a surge in such requests. “We’re seeing demand for coverage for sums ranging from 100 million to 500 million francs.”
The Swiss National Bank imposed sub-zero rates in early 2015, effectively charging banks for excess deposits. Many lenders including UBS Group AG and Credit Suisse Group AG have passed on at least some of the burden — they don’t disclose how much — to cash-rich clients like asset managers and big companies.
While the central bank is seeking to rein in the franc, negative interest rates have side effects that over time could outweigh the benefits. That risk may be on the minds of SNB officials when they meet next week for their scheduled quarterly monetary policy review. Economists expect they will keep the rate steady at minus 0.75 percent, the lowest among major central banks.
“The SNB’s dilemma is that it can’t make everyone happy,” said Alexander Koch, an economist at Raiffeisen Schweiz. “In its attempt to get the best deal for the Swiss economy, it also has created losers and collateral damage.”
Helvetia Holding AG said it charges about 1,000 francs ($1,020) a year to insure 1 million francs, a fraction of the 7,500 francs a company would pay to park the same amount in a bank for a year — assuming the lender passes on the full charge. But that amount doesn’t include the cost of logistics such as transport or security features like reinforced walls, guards and alarm systems.
Companies need to save a lot on bank fees for cash storage to be economical because, in addition to insurance, they have to assume the costs of managing the money, said Roberto Brunazzi, a spokesman for Baloise Holding AG. He said the company has long offered such coverage “but there has been a noticeable increase and now it’s becoming more commonplace.”
Switzerland’s continued use of high-denomination banknotes adds to the appeal of self-storage: About 1 million francs worth of 1,000-franc bills can fit in a small box.
The SNB’s rate applies to sight deposits — cash that commercial banks hold at the central bank — that exceed 20 times a bank’s required minimum, an amount set by the SNB and that varies from lender to lender. Private banks, which have lower thresholds because they are less active in lending, exceeded their exemption limit almost from the start. For other bank categories, deposits stayed either under or just above the threshold for much of last year.
By Jeffrey Voegeli (Bloomberg)