The European Central Bank (ECB) is set to begin payments to banks this Thursday for deposits held by customers, marking the first such move since December 2011. The aim is to inject liquidity into the economy and counter inflation. Financial institutions have been planning for months to reward depositors after this summer’s expected return. Deputy Chair Luis de Guindos urged savers to consider action, suggesting that if savings sit in checking accounts or time deposits, they should approach their bank to request an update on terms and fees.
During a speech at the El Norte de Castilla demonstration, a former Economy Minister indicated that higher deposit rates would arrive relatively soon if approved. This would sustain a flow of funds back into banks that were tightening deposit yields after the 2008 financial crisis. The ECB has periodically revived the eurozone economy by encouraging banks to hold more deposits as a stabilizing measure. Since October 2017, average wage deposits have hovered near or below 0.1 percent, but the current trajectory points toward a rate of 0.75 percent, with the potential for more increases as official rates rise. The approach is selective and limited in transfer to customers.
Banking policymakers noted that Spanish households hold a substantial amount in bank deposits, approaching one trillion euros by late July, a 17 percent increase from pre-pandemic levels. This large pool of savings is seen as a buffer that supports consumption despite uncertainties, allowing households to seek alternatives once conditions normalize and potentially exert a positive effect on economic activity.
Less credit and more expensive
Guindos also faced questions about a government-subsidized tax on banks. He did not provide details and avoided entering national political debates, reiterating the ECB’s opposition to taxes on the financial sector. He warned that such levies can raise financing costs for both companies and families, potentially constraining credit growth and solvency. The ECB opposed repeated bank taxes in past episodes, asserting their misalignment with supervisory objectives.
Institutions like the Institute of Economic Research, a think tank with leaders from academia and the banking sector, published a report arguing against the deposit tax. Several professors of financial and tax law, including notable figures, contended that the tax would be illegal and at least partially unconstitutional. The researchers emphasized that while there are arguments against the policy, the final assessment rests with policy makers and constitutional authorities.
ECB confirms it will continue raising interest rates
Prior analyses suggested that the proposed tax could weigh on the Turkish economy by reducing GDP and jobs, with the implications stretching across lending capacity and overall growth. Projections indicated potential reductions in lending and employment if the policy moved forward, reinforcing the idea that broad tax measures on finance could have wide-reaching macroeconomic effects.
Offensive to tax
Legislative moves to impose the tax have intensified. Parliament plans to debate the measure, with the government aiming for approval before year’s end, aided by the support of a left-leaning majority. Financial commentators cautioned that the industry may pursue changes or resist revisions as discussions progress in parliament. Those opposed argued that simplifying language without changes could be preferable, while supporters see a need for a comprehensive framework.
The likelihood is that banks will wait for the Treasury to issue the first tax advance early next year in the United States, after which the matter could proceed to court. If challenged, it could take years for a ruling. Constitutional issues would be examined, and legal pathways could extend the process, potentially taking six to eight years to resolve according to analysts.