Royal Bank of Canada is imposing negative interest rates on some customers who hold Danish kroner and Swiss francs, joining U.S. rivals in charging depositors who seek refuge from the crisis-stricken euro.
Royal Bank, Canada’s largest lender, cited recent market conditions for the policy, which reverses the traditional practice of paying customers who deposit funds at a bank. State Street Corp. (STT:US) and Bank of New York Mellon Corp. (BK:US), two of the world’s biggest custody banks, have already disclosed plans to offer negative interest rates on those currencies.
Denmark and Switzerland have cut interest rates close to or below zero to keep the krone and franc from rising as investors flee the euro for safer havens, reflecting concern that the currency may break up. While negative rates may drive off some customers, global lenders want to restore the profit margin between what they pay for deposits and what they earn on investments.
“If these markets return to positive nominal interest rates, we would reflect this change in the interest rates applicable to client balances,” said Katherine Gay, a spokeswoman for Toronto-based Royal Bank, in an e-mailed statement. She didn’t specify the interest rate.
Investors are willing to accept negative interest rates if they believe it will cost less than riding out a decline in the value of another currency. Depositors have turned to Denmark and Switzerland as they hunt for currencies with less risk than the euro, whose fate depends in part on whether cash-strapped nations such as Greece can pay their debts.
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