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German Banks‘ Cash Holdings Hit Fresh High, But Might Decline Now

German Banks Held a Record of €51.7bn in Cash per June 2022

As one response to the introduction of negative rates from the ECB German banks started to dramatically increase their cash holdings starting in 2014. Right before the end of negative rates cash holdings hit a fresh record high of €51.7bn in June 2022 currently saving banks an annualised €258m of interest expenses at a negative rate of minus 0.5% pa.

Bank Cash Might, However, Go Downhill From Here

However, once the ECB deposit rate turns positive, banks will start losing money on their cash holdings making their reduction very likely. We will monitor if banks‘ cash will go down as quickly as it rose now that the ECB started hiking interest rates.

A first indication of the above is a strong decline in circulating cash by €14bn in Germany over the last three weeks, which can be observed at our Central Bank Cash Tracker.