Banks Under Fire in Denmark as Subzero Rates Hit Retail Deposits

(Bloomberg) -- Denmark’s government has summoned representatives from the financial industry to talks as banks in the country impose negative interest rates on an increasingly large chunk of retail deposits.

The announcement comes just one day after Danske Bank A/S, Denmark’s largest lender, said it will be applying negative rates to deposits as low as 100,000 kroner ($16,000), more than halving an existing threshold.

Denmark has had negative rates longer than any other country, after the central bank first went below zero in 2012 to defend the krone’s peg to the euro. At first, commercial banks were reluctant to pass on that cost to clients for fear of losing business. But after several years of the policy, the financial industry caved, and negative retail deposit rates have become the norm.

Business Minister Simon Kollerup says he now wants the industry to explain the development, amid concerns that consumers are losing out.

“The limit for negative interest rates [at banks] has been reached,” Kollerup said on his Facebook page. “I think it should stop now.”

Ulrik Nodgaard, the head of industry lobby group Finance Denmark, said the decision to impose negative interest rates is guided by the country’s monetary policy, not the financial industry.

“For many years, Danish banks avoided passing negative rates on to their clients, even though they lost money in doing so,” Nodgaard said in an email. “But in the long run, private corporations can’t sell their products below the cost of production, and the same applies to banks.”

‘Financial Supermarkets’

Kollerup issued his warning along with a broader announcement in which he took aim at the financial industry’s history of scandals. Kollerup said there’s reason to question whether the sector’s current structure, including the prevalence of large financial conglomerates, needs to be reviewed.

“All too often, consumers are unfortunately not treated appropriately in the financial sector,” Kollerup said in a statement on Tuesday. “That’s why the Business Ministry is now launching an inquiry into what it means to have several financial services brought together under one umbrella in so-called financial supermarkets.”

The comments triggered alarm in Denmark’s financial industry, which is still reeling from a string of scandals. Most prominent among these is the money laundering affair surrounding Danske Bank, which is being investigated in the U.S. and Europe and has already cost a string of executives their jobs.

Nodgaard said breaking up the banks would be a mistake as customers generally benefit from having a one-stop shop.

“It wouldn’t improve competition to introduce rigid rules over who can own what,” he said. “On the contrary.”

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