Is the end nigh for the Euro? [vol. 3]
Discussion
Mr Whippy said:
Banks paying borrowers, Austrian government pulling deposit assurance and having banks only provide ~ 1% coverage of deposits as insurance.
Have you a link for that as Forbes is saying something rather differenthttp://www.forbes.com/sites/francescoppola/2014/06...
Walford said:
Where does Draghi disappear to when all that kerfuffle is going on? Is he the one who has her in a headlock? or is he really a vampire and can just vanish like a Greek tax return? I think we should be told....gruffalo said:
Crusoe said:
Borghetto said:
gruffalo said:
Nice Thong:-)
I would.
That was exactly what I thought. Does that make me a shallow person?I would.
wc98 said:
I've seen number 12 before, the look on Granny Merkel's face is priceless.turbobloke said:
wc98 said:
I've seen number 12 before, the look on Granny Merkel's face is priceless.
.. you know he's thinking "nice rack!"
wc98 said:
be a bit of a handful i think. http://www.spiegel.de/fotostrecke/photo-gallery-to... anyone that mental has to be good in the sack though
Get buried in deep, call her by her sisters name and enjoy the ride.What could go wrong
Mermaid said:
A Borrower But Not a Lender Be
Banks set interest rates on many loans as a small percentage above or below a benchmark rate. In Europe that number is often Euribor, or the euro interbank offered rate. As rates have declined, sometimes to below zero, we find that some banks have landed in a paradoxical position: owing money on loans to borrowers. Lenders are turning to central banks for guidance, but what they are hearing is less than comforting. Portugal’s central bank recently ruled that banks would have to pay interest on existing loans if Euribor plus any additional spread falls below zero. Bankers in Italy said they are awaiting guidance from their local banking association, because loan contracts don’t include any clause on what happens if benchmark rates go below zero. And in Spain at least one bank has already been forced to pay borrowers.
Banks set interest rates on many loans as a small percentage above or below a benchmark rate. In Europe that number is often Euribor, or the euro interbank offered rate. As rates have declined, sometimes to below zero, we find that some banks have landed in a paradoxical position: owing money on loans to borrowers. Lenders are turning to central banks for guidance, but what they are hearing is less than comforting. Portugal’s central bank recently ruled that banks would have to pay interest on existing loans if Euribor plus any additional spread falls below zero. Bankers in Italy said they are awaiting guidance from their local banking association, because loan contracts don’t include any clause on what happens if benchmark rates go below zero. And in Spain at least one bank has already been forced to pay borrowers.
Mermaid said:
Tumbling interest rates in Europe have put some banks in an inconceivable position: owing money on loans to borrowers.
At least one Spanish bank, Bankinter SA, the country’s seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes.
The problem is just one of many challenges caused by interest rates falling below zero, known as a negative interest rate. All over Europe, banks are being compelled to rebuild computer programs, update legal documents and redo spreadsheets to account for negative rates.
Interest rates have been falling sharply, in some cases into negative territory, since the European Central Bank last year introduced measures meant to spur the economy in the eurozone, including cutting its own deposit rate. The ECB in March also launched a bond-buying program, driving down yields on eurozone debt in hopes of fostering lending.
In countries such as Spain, Portugal and Italy, the base interest rate used for many loans, especially mortgages, is the euro interbank offered rate, or Euribor. The rate is based on how much it costs European banks to borrow from each other.
Banks set interest rates on many loans as a small percentage above or below a benchmark such as Euribor. As rates have declined, sometimes to below zero, some banks have faced the paradox of paying interest to those who have borrowed money from them.
Lenders, hoping to avoid the expense of having to pay borrowers, are turning to central banks for guidance. But what they are hearing is less than comforting.
Portugal’s central bank recently ruled that banks would have to pay interest on existing loans if Euribor plus any additional spread falls below zero. The central bank, however, said lenders are free to take “precautionary measures” in future contracts. More than 90% of the 2.3 million mortgages outstanding in Portugal have variable rates linked to Euribor.
In Spain, a spokesman for the central bank said it is studying the issue.
The vast majority of Spanish home mortgages have rates that rise and fall tied to 12-month Euribor, said Irene Peña, an economist with Spain’s mortgage association. That rate stands at 0.187%.
Bankers in Italy said they are awaiting guidance from their local banking association, because loan contracts don’t include any clause on what happens if benchmark rates go below zero. About half of the mortgages outstanding in Italy have variable rates, most of them linked to Euribor, according to mortgage broker Mutuionline. Some other countries, such as Germany, often use fixed rates.
Heard on the Street: European Bond Market Defies Logic
In Spain, Bankinter has been forced to deduct some clients’ mortgage principal payments because an interest-rate benchmark tied to Switzerland’s currency has dipped into negative territory.
In January, the Swiss National Bank ended a 3½-year policy of capping the strength of the franc against the euro, sending the Swiss currency soaring against the common currency and U.S. dollar, and cut bank deposit rates into negative territory. The move to end the cap on the franc was designed to relieve pressure on Swiss exporters, many of which are reliant on the eurozone for sales.
During Spain’s home-building frenzy in the middle of the last decade, Bankinter issued mortgages tied to the one-month Swiss franc iteration of the London interbank offered rate, or Libor. At the time, clients were attracted to the offer because Swiss franc Libor was lower than Euribor, the traditional reference for Spanish mortgages.
“I’m going to frame my bank statement, which shows that Bankinter is paying me interest on my mortgage,” said a customer who lives in Madrid. “That’s financial history.”
The client in 2006 took out a roughly €500,000 ($530,000) home mortgage loan based on Swiss franc Libor, plus 0.5 percentage point. Since then, Swiss franc Libor has fallen far enough into negative territory to make his mortgage rate negative.
It is hardly a windfall for this customer, however, because, while Swiss franc Libor has fallen, the Swiss franc itself has risen in value against the euro. That means the value in euros of the total mortgage debt he owes Bankinter has also increased, because that debt is denominated in Swiss francs.
Bankinter has few such mortgages tied to a negative Libor rate, a spokesman said, declining to provide a figure.
An executive at another Spanish bank said the lender in recent months has started to put in place an interest-rate floor on thousands of short-term business loans that are tied to short-term variations of Euribor. Two-month Euribor, is at minus 0.004%. For new loans, the bank is increasing the cushion it charges customers above Euribor.
Hundreds of thousands of additional loans would be affected if medium-term Euribor rates enter negative territory, the executive said. The six-month rate is currently at 0.078%.
Meanwhile, some borrowers in Spain haven’t found relief.
A Madrid judge in November ruled against a client of Banco Santander SA who claimed that Spain’s largest bank inappropriately established a floor on his mortgage in 2013 and therefore owed him money. The plaintiff had taken out a mortgage in 2005 that offered a fixed rate of 2% in the first year and Euribor minus 1.1 percentage points thereafter. The plaintiff said he was now owed money from the bank.
To buttress his argument that a bank shouldn’t have to pay a borrower for a loan, the judge quoted from a June 2014 statement from the Bank of Spain that “a payment in favor of the client in these situations would never apply, but rather the application of an interest rate of zero by the entity.” The Bank of Spain spokesman said the statement cited in the case was issued by the central bank’s customer-complaints service, which typically responds to particular cases. The Bank of Spain hasn’t issued a systemwide decision on how banks should treat negative interest rates, he said.
In Portugal, interest rates on most mortgages are linked to a monthly average of three- and six-month Euribor. Both have been steadily sinking and are hovering just above zero.
João Coelho da Silva, a 53-year-old real-estate agent in Lisbon, has seen his mortgage payments fall from about €450 a month when his loan began in 2008 to €235 now, thanks to a falling three-month Euribor. “With the economy in such a bad state, these monthly savings are more than welcomed,” Mr. da Silva said.
I must apologize for not commenting upon these two excellent posts from Mermaid earlier I have been away and therefore not about. Really the depth of perception contained therein and the elucidation of the most serious problems for the entire structure of the finance systenm does require consideration. As Mermaid suggests there are a significant number of such serious anomalies primarily raised by the negative interest rates currently being experienced across the economies of the world. At least one Spanish bank, Bankinter SA, the country’s seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes.
The problem is just one of many challenges caused by interest rates falling below zero, known as a negative interest rate. All over Europe, banks are being compelled to rebuild computer programs, update legal documents and redo spreadsheets to account for negative rates.
Interest rates have been falling sharply, in some cases into negative territory, since the European Central Bank last year introduced measures meant to spur the economy in the eurozone, including cutting its own deposit rate. The ECB in March also launched a bond-buying program, driving down yields on eurozone debt in hopes of fostering lending.
In countries such as Spain, Portugal and Italy, the base interest rate used for many loans, especially mortgages, is the euro interbank offered rate, or Euribor. The rate is based on how much it costs European banks to borrow from each other.
Banks set interest rates on many loans as a small percentage above or below a benchmark such as Euribor. As rates have declined, sometimes to below zero, some banks have faced the paradox of paying interest to those who have borrowed money from them.
Lenders, hoping to avoid the expense of having to pay borrowers, are turning to central banks for guidance. But what they are hearing is less than comforting.
Portugal’s central bank recently ruled that banks would have to pay interest on existing loans if Euribor plus any additional spread falls below zero. The central bank, however, said lenders are free to take “precautionary measures” in future contracts. More than 90% of the 2.3 million mortgages outstanding in Portugal have variable rates linked to Euribor.
In Spain, a spokesman for the central bank said it is studying the issue.
The vast majority of Spanish home mortgages have rates that rise and fall tied to 12-month Euribor, said Irene Peña, an economist with Spain’s mortgage association. That rate stands at 0.187%.
Bankers in Italy said they are awaiting guidance from their local banking association, because loan contracts don’t include any clause on what happens if benchmark rates go below zero. About half of the mortgages outstanding in Italy have variable rates, most of them linked to Euribor, according to mortgage broker Mutuionline. Some other countries, such as Germany, often use fixed rates.
Heard on the Street: European Bond Market Defies Logic
In Spain, Bankinter has been forced to deduct some clients’ mortgage principal payments because an interest-rate benchmark tied to Switzerland’s currency has dipped into negative territory.
In January, the Swiss National Bank ended a 3½-year policy of capping the strength of the franc against the euro, sending the Swiss currency soaring against the common currency and U.S. dollar, and cut bank deposit rates into negative territory. The move to end the cap on the franc was designed to relieve pressure on Swiss exporters, many of which are reliant on the eurozone for sales.
During Spain’s home-building frenzy in the middle of the last decade, Bankinter issued mortgages tied to the one-month Swiss franc iteration of the London interbank offered rate, or Libor. At the time, clients were attracted to the offer because Swiss franc Libor was lower than Euribor, the traditional reference for Spanish mortgages.
“I’m going to frame my bank statement, which shows that Bankinter is paying me interest on my mortgage,” said a customer who lives in Madrid. “That’s financial history.”
The client in 2006 took out a roughly €500,000 ($530,000) home mortgage loan based on Swiss franc Libor, plus 0.5 percentage point. Since then, Swiss franc Libor has fallen far enough into negative territory to make his mortgage rate negative.
It is hardly a windfall for this customer, however, because, while Swiss franc Libor has fallen, the Swiss franc itself has risen in value against the euro. That means the value in euros of the total mortgage debt he owes Bankinter has also increased, because that debt is denominated in Swiss francs.
Bankinter has few such mortgages tied to a negative Libor rate, a spokesman said, declining to provide a figure.
An executive at another Spanish bank said the lender in recent months has started to put in place an interest-rate floor on thousands of short-term business loans that are tied to short-term variations of Euribor. Two-month Euribor, is at minus 0.004%. For new loans, the bank is increasing the cushion it charges customers above Euribor.
Hundreds of thousands of additional loans would be affected if medium-term Euribor rates enter negative territory, the executive said. The six-month rate is currently at 0.078%.
Meanwhile, some borrowers in Spain haven’t found relief.
A Madrid judge in November ruled against a client of Banco Santander SA who claimed that Spain’s largest bank inappropriately established a floor on his mortgage in 2013 and therefore owed him money. The plaintiff had taken out a mortgage in 2005 that offered a fixed rate of 2% in the first year and Euribor minus 1.1 percentage points thereafter. The plaintiff said he was now owed money from the bank.
To buttress his argument that a bank shouldn’t have to pay a borrower for a loan, the judge quoted from a June 2014 statement from the Bank of Spain that “a payment in favor of the client in these situations would never apply, but rather the application of an interest rate of zero by the entity.” The Bank of Spain spokesman said the statement cited in the case was issued by the central bank’s customer-complaints service, which typically responds to particular cases. The Bank of Spain hasn’t issued a systemwide decision on how banks should treat negative interest rates, he said.
In Portugal, interest rates on most mortgages are linked to a monthly average of three- and six-month Euribor. Both have been steadily sinking and are hovering just above zero.
João Coelho da Silva, a 53-year-old real-estate agent in Lisbon, has seen his mortgage payments fall from about €450 a month when his loan began in 2008 to €235 now, thanks to a falling three-month Euribor. “With the economy in such a bad state, these monthly savings are more than welcomed,” Mr. da Silva said.
I can only admire the original thinking behind these contributions and the considerable understanding that posts of this calibre require. Once again the contributions on PH are in a different league to the poor quality ramblings of disinterested scibes who supposedly seek to enlighten the public on such matters. Where else but on PH could such a challenging and calm appraisal of this problem be found?
Clearly there are a whole series of nonsenses hanging over from the consequences of the Banking crisis which are still just as poisonous as they were, when they first started to arise, all those years ago and still absolutely no answer as yet as to how this can be treated?.
The essence of the problem is that the prudent and careful individual may receive no assistance because he needs none and the desperately over borrowed individual receives mortgage reductions because of the negative equity trap he is in. Where this will lead to I have no idea?
Nor it would appear have the various financial institutions with the problem, nor indeed do the supposed monitoring and authorizing central government agencies, nor indeed do the governments concerned .
In consequence there is virtually no discussion in mainstream media who simply avoid the discussion. But this problem is actually here and needs answering. Remarkable how ineffective the investigative press have become.
Turning back to the matter in hand I would suggest that all is not at all well with the supposed resolution of the transparent insolvency of Greece by the EU and that really hard decisions are being carefully considered by the EU. It seems to me to be ridiculous for the pretence that Greece is recovering in any way whatsoever economically to be continued. In consequence the EU has got to resolve what to do next.
Syriza appear to be relying upon another handout followed by another hanbdout and another handout ad infinitum and have absolutely no intention of introducing any real policies which might improve the position of Greece.
In consequence this is all down to the EU and there are clear signs emanating suggesting that there are now voices within the EU who are seriously doubtful that this can continue for much longer. Without any effort from within Greece to recognize and face the reality of the problem this really must be a question of time now. The EU may push this nonsense a little further at a loss of even more Billions of Euros but within a few weeks the next begging bowl antics will be starting again. Greece will default.
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