Comment on Central Bank of Japan's Negative Rate Decision

Comment on Central Bank of Japan's Negative Rate Decision

Nick Nicholls

Business Consulting Lead at GFT

Views 413

Comment on Central Bank of Japan's Negative Rate Decision

02.02.2016 08:00 am

“In light of today’s news about the move to negative rates by the Central Bank of Japan, it has been suggested that the BoJ is protecting banks from the effect of negative rates on holding deposits by providing a tiering of subsidy against central bank reserves. The suggestion being that the more cash that’s held centrally, the lower the rate will go.

“However, what hasn’t been mentioned is that the reason for those reserves being there in the first place is a consequence of liquidity and stress test regulations which are driven by the need to ensure that banks can meet liabilities as they fall due during a crisis. This increased requirement to hold more liquid assets was as a direct result of the 2008 financial crisis, following which the G20 nations led the way in trying to ensure such as crisis would never happen again.

“Banks don’t hold excess reserves; it’s too expensive. They hold enough to be compliant, and to meet their internal liquidity models.

“However, banks have issues within their infrastructure, which means they struggle to calculate accurately the optimal extent to which they need liquidity reserves. The position to support settlement of cash and securities as they fall due in a crisis is most likely overstated by most banks. Until these are addressed, reserves at the central banks will remain high.

“In the meantime customers’ short-term deposits continue to be driven away from banks, creating a risk transference; which sees more funds flow into not-so-well-regulated shadow banking sectors. We’re probably creating a new unregulated global loan position, without yet fully addressing the previous crisis.” 

Latest blogs

n/a n/a

How COVID-19 Is Ushering In a New Era of Cashless Technology

  Image source: https://www.pexels.com/photo/person-shopping-online-3944405/   Cashless technology isn't a completely fresh concept. People have been using credit cards for decades, and the market for fintech services has been Read more »

Jean Shin tyntec

Using WhatsApp for 2FA is the Future of Banking

From user authentication and password resets to transaction verification, two-factor authentication (2FA) offers basic but useful protection for consumers. The 2FA process typically sends an SMS sent to the customer with a one-time password (OTP). Read more »

Amir Ghodrati App Annie

The Role of Fintech Apps in Navigating This Period of Financial Insecurity

Economic instability has been ricocheting throughout the stock market in the wake of the global coronavirus pandemic. Its effects have been felt across all industries, with winners and losers’ across different sectors. So, how has fintech Read more »

n/a n/a

How to Choose a VPN for Digital Privacy & Security

In a world where almost everything is connected, and where hackers and other malicious people are roaming the internet, it is always advisable that you take every precaution that you can to enhance your data security and privacy protections. Using a Read more »

Ben Slater Instaclustr

The Case for Adopting Open Source – Own Rather Than Rent the Foundations of Your Business

For some time open source was seen as something that only the biggest companies could use and play with. But with the modern, increasingly fast business environment, the use cases for open source are in everything and the technology is increasingly Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel