The euro-denominated sector gets stranger and stranger as banks scramble for debt to pawn off as ECB collateral. In the you-can’t-make-this-stuff-up realm, investors are paying Germany six basis points (negative 0.06%) for two year bunds.
Even non-eurozone debt is treading perilously close to the zero mark. Bulgarian debt maturing in January is trading at zero yield, the Czech Republic two years at 0.60% and Polish rates are scrapping bottom. The Danish Central Bank cut its key interest rate by 25 basis points to a negative 0.20 percent following a rate reduction by the European Central Bank, which means that banks are in the unusual situation of paying to deposit their money with the central bank. Savers there can now lend banks their cash and pay them to take it. Central bank masters of the universe have managed to push the Swiss yield curve in the 2-year yields to -0.39% (negative 39 basis points). Out 5 years, the rate is zero. Yields on U.S. Treasury two years are 0.20 percent (20 basis points). Three-month bills yield 0.07% (seven basis points).
Crazy as it seems and taking the ongoing financial repression to new levels, the Treasury Advisory Committee (a group of Wall Street bankster types) has been toying with the idea of creating a scam to have savers also pay negative interest rates to the U.S. Treasury for the “privilege” of loaning them money (New York Times: Treasury Ponders Negative Interest Rates). All it would take to set this travesty up would be for the Fed to reduce the interest paid on reserve deposit to zero (just like the ECB), and the last little vestiges of yield paid by banks and money markets would completely disappear. Aunt Millie and her ilk might face paying her bank for the mere privilege of loaning many as well.
Outlandish, you ask? You’ve been forewarned. Even before adding this risk to zero rates, money-market mutual-fund assets were in gradual draw-down mode. The ICI reports a $107.6 billion drop to $2.539 trillion from March 7 to July 18.
Money-market fund withdrawals should be limited in the event of a “run,” according to a report by the FRBNY “strongly” endorsed by bank president Bill Dudley. The authors suggest a “minimum balance at risk” that would not be available for withdraw for 30 days, forcing depositors to think twice about where to place funds.
The criminality, the bending of rules, the zero and negative interest rates paid to hold insolvent sovereign debt and the questionable standing of banks all beg the question: Why shouldn’t holders of money collectively withdraw hundreds of billions out of the banking system and just store it in a custodian bank vault? There may be some sign this is happening already at the margin. Currency has increased $39.5 billion to a total of $1.113.1 trillion in circulation since year end, or 7 percent annually.
Important distinction: Custodian banks don’t take deposits; they hold cash for safekeeping. This is not a recommendation or endorsement, but the list below are of banks offering custodian services (Custodian bank defined on Wiki). There are too many too-big-to-saves out there for my taste.
Wiki: A custodian bank, or simply custodian, is a specialized financial institution responsible for safeguarding a firm’s or individual’s financial assets and is not likely to engage in “traditional” commercial or consumer/retail banking, such as mortgage or personal lending, branch banking, personal accounts, ATMs and so forth. The role of a custodian in such a case would be to:
- Hold in safekeeping assets/securities, such as stocks, bonds, commodities such as precious metals and currency (cash), domestic and foreign
In fact, you will probably find that no banks near you offer this service unless you live near a major financial center. I live in Honolulu where banks only offer safe deposit boxes, which is not recommended for the purpose of storing large amounts of cash. Filling suit cases with large quantities of cash and heading off to Hong Kong or Singapore is an invitation for trouble from the U.S., which is becoming a police state. Stashing it in your home might cost you both your money and your life.
The following companies offer custodian bank services:
- Mitsubishi UFJ Trust and Banking Corporation
- JPMorgan Chase
- Bank of America
- Credit Suisse
- Brown Brothers Harriman
- Goldman Sachs
- Bank of Ireland Securities Services
- ICICI Bank
- Standard Chartered Bank
- Asia Pacific Banking Investment Group
- Bank of New York Mellon
- BNP Paribas Securities Services
- Banco de Oro Unibank
- CIBC Mellon
- Comerica Bank
- Fifth Third Bank
- Kasbank N.V.
- BBVA Compass Bank
- Northern Trust
- RBC Dexia
- Union Bank
- U.S. Bank
- Standard Bank
- State Street Bank and Trust Company
- Wells Fargo Bank
- Deutsche Bank
- HDFC Bank
- Estrategia Investimentos
- Japan Trustee Services Bank
- The Master Trust Bank of Japan
- UMB Fund Services
- The Kingdom Trust Company
- Bank of China (Hong Kong) Limited
This post is reprinted from Russ's premium service, Russ Winter's Actionable. Click here to subscribe to Russ Winter's Actionable, and get instant access.
Source: Wall Street Examiner