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System Breaking? Two Huge Banks Cut Ties with Central Banks

June 8, 2016 (EIRNS)—In Germany and Japan, megabanks have begun moves to end their transactions with the European Central Bank (ECB) and Bank of Japan (BoJ) respectively, in a first sign that negative interest rate policy may actually be breaking up the banking system.

Germany’s second-largest, Commerzbank is becoming the first major European bank to store its cash rather than placing reserves at the European Central Bank, according to Reuters today. If other big banks follow, the news service says, "it could render the ECB’s negative interest rate policy ineffective." Commerzbank said in a statement last month that the negative rate policy had wiped out its earnings. German Finance Minister Schaeuble said in April that the ECB’s record low interest rates were causing "extraordinary problems" for German banks.

Under this completely dysfunctional policy, the ECB has pumped more than 1 trillion euros of fresh money into the system, most of which has gone to the largest banks in northern European countries, which have hoarded 850 billion euros right back at the ECB, rather than making loans. Now, even that is losing them money.

In Japan, the national news agency NHK reported that Bank of Tokyo-Mitsubishi, Japan’s largest bank, is quitting as a primary dealer of Japanese government bonds, the first large bank ever to do so, and ceasing to buy government bonds. NHK notes that this "could have a ripple effect among the other major participating banks" and disrupt the government bond market.

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