Insurers protect German banks hoarding billions in cash

Europe’s top insurers are selling protection to German banks that hoard billions of euros of cash in vaults to avoid paying a penalty by parking it at the European Central Bank, company executives told Reuters.

The sums are so big they are also setting up consortia to insure cash storage spaces, responding to banks’ growing desire to escape the negative deposit rate introduced by the ECB to encourage banks to lend money, executives said.

Allianz (ALVG.DE), the region’s largest insurer, and Ergo (MUVGn.DE), Germany’s second biggest player, told Reuters they are seeing an upsurge in enquiries for cash insurance by German banks. Germany’s Talanx (TLXGn.DE) and France’s Axa (AXAF.PA) said they offer similar policies.

On large amounts, these can cost less than half the price of keeping the money at the ECB and executives said banks and insurers are striking deals to underwrite holdings of 2 billion ($2.3 billion) to 4 billion euros.

“In recent months, we’ve seen an increased interest from financial institutions such as banks for higher limits for cash coverage in secure facilities,” said Philip Beblo of Allianz Global Corporate & Specialty in Munich.

Storing cash is particularly popular in Germany, where Finance Minister Wolfgang Schaeuble and banks have been critical of the ECB. The executives said they were not aware of similar requests for cash protection so far from banks from other European countries and Switzerland, where the central bank has also set negative interest rates, has not seen such a trend. Last week, two officials told Reuters that Germany’s second-biggest lender, Commerzbank (CBKG.DE), was mulling holding billions of euros in vaults.

The ECB introduced the penalty charge to encourage banks to lend their money to help stimulate the economy rather than parking it at the central bank.

But with economic prospects dim, banks are either unwilling to take the risk of lending or companies and consumers are reluctant to borrow. Compounding this problem, there is ever more cash in circulation, due to ECB money printing.