German Banks Use Insurers To Protect Billions In Cash

Several German banks are buying protection from large European insurers to sidestep paying penalties on cash (read: euros) that they might keep at the European Central Bank (ECB), even as they keep billions of euros physically in vaults.

Reuters reported that “the sums are so big” that there are consortia being formed to make sure there are storage spaces that can take charge of the funds. The culprit is the negative deposit rate that is being brought to bear by the ECB. The largest insurer, Allianz, along with Ergo, the second-largest insurer, told the newswire that they are seeing a boost in interest in cash insurance, as desired by German banks.

Given the amounts being parked, Reuters noted the cost of keeping insurance can be less than half the rates that would be incurred by keeping the money with the ECB, and the deals that are being written between banks and insurers are underwriting holdings upwards of €2 billion to €4 billion. Commerzbank, the second-biggest lender in Germany, is considering the same practices, said sources.

The negative rates are a way for the ECB to stimulate money lending across the economy, rather than keeping holdings with the ECB to the tune of billions of euros. The negative rates are roughly half of a percent.

Cash storage remains popular in Germany, as some of the nation’s highest-ranking politicians have been critical of the ECB and rates charged. The newswire said that other nations thus far have shied away from similar practices within the EU.

Why insure? The physical risk itself, as cash can catch fire or, of course, be stolen.