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Canadian Bank Starts Charging Negative 0.75percent Rate On Most Foreign Cash Balances

BMO Nesbitt Burns

BMO Nesbitt Burns - Click to enlarge

Despite speculation over the past year that Canada may join Japan and Europe in the NIRP club and launch negative interest rates, so far the BOC has stood its ground. However, starting on December 22, for the broker dealer clients of one of Canada’s most reputable financial institutions, BMO Nesbitt Burns, it will be as if the Canadian bank has cut its deposit rate on most currencies, to match the deposit rate of Switzerland.

In an internal letter sent today from management, the bank explains that its current policy with respect to cash balances of foreign currencies held in client accounts – excluding U.S. dollars – has been that it “does not pay or charge clients interest on these balances.” As a result, the bank writes, clients have traditionally tended not to hold non-U.S. dollar foreign currencies in a BMO Nesbitt Burns account for any extended period. However, the notice continues, “given the current global interest rate environment, which has extended much longer than anticipated, we have seen an increase in foreign currency cash reserves across accounts; indicating clients are, in fact, moving these funds into their BMO Nesbitt Burns account in order to avoid negative interest charges on cash holdings in other accounts they maintain.

Welcome to the age of connected monetary vessels, where globally fungible money allows savers to bypass their own domestic “financial repression” and negative interest rates, by shifting their funds to offshore bank accounts. Or at least it did for clients using BMO Nesbitt Burns as a custodian of offshore money. Because as the bank adds, it has become necessary for the bank to update its current policy and selectively implement negative rates to avoid precisely this global interconnection. To wit:

Effective December 22, 2016, we will begin charging clients a market-rate negative interest charge of 75 basis points on cash balances of all foreign currencies held in their account(s), excluding U.S. dollars. Interest is calculated on the average daily balance during the interest period. The first negative interest charge will cover the period of December 22, 2016 to January 21, 2017, and will be charged to all applicable client accounts on January 23, 2017.

How long will BMO continue this unprecedented financial repression of its foreign clients? Simple: as long as NIRP in other nations forces funds to be parked in banks like the Bank of Montreal.

This rate will be regularly reviewed to ensure it remains competitive and will continue until to be charged until such time as foreign interest rate policies negate the need to apply this charge to client accounts. Please note that negative monthly interest charges below $5.00 will not be charged to client accounts.

What happens then? Well, if BMO depositors (of whom we wonder just what percentage are Chinese) take their money to another Canadian bank, that bank will promptly follow suit and implement a similar “negative rate” provision for foreign clients, until eventually every single bank, and not just in Canada, has a bifurcated deposit rate policy: one for account held in Canadian and US Dollars, and another for all other currencies, which will demand an annual fee of 0.75% for the privilege of holding their funds.

What is BMO Nesbitt Burns’ advice to advisors with clients that have any foreign, non-U.S. dollar foreign currencies on deposit? They are encouraged to contact these clients and advise them that they may wish to consider purchasing an alternative short-term investment denominated in the foreign currency, or another available product, as otherwise there is no evading the -0.75% fee.

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Tyler Durden
ZeroHedges' Tyler Durden is the hero of Fight Club, the 1999 movie based on Chuck Palahniuk's novel that reflected Chuck's experience in the Cacophony Society Quote: "Goddamn it, an entire generation pumping gas, waiting tables, slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war… our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off." --> see more about Tyler on snbchf
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