Bank of Ireland blames Europe for new charges

Richie Boucher has never been afraid to stand out from the crowd, which might explain Bank of Ireland's decision to begin charging large corporate and institutional customers for holding deposits with the institution.

From October 10th, a rate of 0.1 per cent will be charged to customers who hold deposits of €10 million or more with the bank or have multiple deposit accounts with it, regardless of the sums involved. It is thought to affect only a small number of customers.

Bank of Ireland has told customers that this is the result of the European Central Bank's decision earlier this year to levy a negative interest rate of 0.4 per cent on overnight deposits.

It turns out that Ulster Bank has been quietly charging large corporates in the Republic for holding deposits with the bank for some time now. This might have been its parent, Royal Bank of Scotland, testing the waters as it emerged on Friday that the institution plans to charge large corporates in the UK for their deposits from Monday.

And we know that some banks in Germany and other European countries have begun introducing negative interest rates.

AIB

This all stems from the ultra low interest rate environment that we’ve been living with since the global financial crash in late 2008. Many central banks around the world are now charging negative interest rates in the hope of persuading investors and companies to put their money to other uses that might generate them a return and also stimulate economic activity.

It’s also a factor of the banks having ample access to liquidity at a time when lending in Ireland is sluggish. They arguably have too much money in their vaults at a time of muted lending demand.

Nonetheless, Bank of Ireland is setting itself out from AIB, its biggest rival in the Irish market. AIB, which is 99 per cent State owned, is not charging a negative interest rate on its deposits and says it has no plans to do so.

Will those corporates affected by the Bank of Ireland charge switch to AIB? Possibly but a lot will depend on the nature of the business relationship between the bank and the customer. It will certainly encourage them to interrogate their banking arrangements in some detail and possibly rationalise their accounts.

The fear among the business community is that this might be a slippery slope to the banks eventually charging us all for the privilege of housing our deposits with them. This seems unlikely in the case of personal customers, given the political storm that would most likely erupt given that taxpayers bailed out the sector to the tune of €64 billion.

But SMEs might yet find themselves in the firing line if the ECB’s effort to stimulate European economies continues to yield meagre results.