Banks consider an extreme measure to dodge negative interest rates

Cash is king - and these guys have a lot to hold on to...

Banks consider an extreme measure to dodge negative interest rates

Niall Carson / PA

Banks across Europe are considering physically storing cash in vaults to avoid charges - instead of transferring funds to the European Central Bank (ECB) due to its negative interest rates.

Banks are currently effectively paying the ECB a 0.4% fee to hold their money.

As bank profits face a squeeze across the board, these charges are having an impact on their bottom line, this has cost banks €2.64bn since rates turned negative in 2014.

The Financial Times reports that a number of financial institutions have taken to turning electronic money into cash. Germany's Munich Re has done so with a double-digit million sum of euro notes, it told the newspaper that the cost of transferring and storing this money was "manageable."

As its profits dip, Germany's second-largest lender, Commerzbank says that it has also explored the option of transferring these funds into cash to hoard.

If this strategy caught on it would undermine the effectiveness of future ECB rate cuts - the bank could turn to the tool again as economic performance across the euro zone remains sluggish and inflation sits well below the 2% target.

But between transport, security, insurance, and storage costs it would be difficult to store money physically without it costing more than the ECB rate.