RBS changed the terms and conditions on its business current accounts this week to let firms know that negative rates could be imposed if market conditions shift, and if the Bank of England cuts rates hard, reports The Telegraph.
Market insiders believe this could trigger a wave of cash flooding out of RBS and into other banks.
If those banks cannot find enough borrowers to take the money off their hands, they too could cut rates to zero or below, to avoid paying interest on unwanted deposits.
“We wouldn’t necessarily want to be the only one not charging negative rates – we might attract a huge flow of liabilities [deposits] and if we can’t do anything with those it will be a huge charge against us,” said one insider at a major bank.
“So if one bank does it, you could see others follow. We don’t want to attract more money than we need.”
Analyst Ian Gordon said banks such as RBS have more cash than they need already and so may be prepared let customers go.
“If a bank chose to pay negative rates and lost a slug of deposits, the bank in question wouldn’t particularly care – what they’re currently looking at is surplus deposits which they cannot deploy in new loans because there is a lack of demand,” he said.
Such a situation represents a radical change from the credit crunch era when banks were afraid of running short of funding.
Gary Greenwood at Shore Capital said that business customers might not always be able to move, if they still need that bank for other services such as loans – allowing banks to make money from negative rates.
“I think other banks will follow suit, but I’m not convinced there will be loads of switching, as there is more to business bank relationships than just the headline rate on current accounts. Remember they already pay plenty of fees that your average retail customer doesn’t,” he said.
The banks – including Lloyds, Santander, Barclays and HSBC – all say they have no current plans to change their terms and conditions to allow negative rates. They do regularly review their policies, however.
Earlier this year HSBC changed the terms on its foreign currency accounts to warn they could charge negative rates if need be.
The Federation of Small Businesses said the idea of negative rates is “deeply concerning.”
“Small business confidence is already at a four year low. Firms are less optimistic, cutting headcount and curbing investment intentions. When the Monetary Policy Committee meets next week to decide on interest rates, we would call on them to do everything possible to consider the implications of changing interest rates for smaller firms and the self-employed looking to maintain or grow their business,” said the group’s chairman Mike Cherry.
“It is now vital that all finance providers holding deposits from small businesses do everything they can to update customers concerned about any changes to their Business Current Account (BCA) during this uncertain economic period.”
