Spain to clamp down on “deposits war” with interest rates limit

The Spanish government is expected to approve new rules next month that will penalise banks paying out “excessive” interest rates in a move to cool a damaging “deposits war” between banks.

Elena Salgado, the economy and finance minister, has asked her officials to prepare proposals for adoption at a cabinet meeting on 10 June. The new rules would kick-in when interest paid on deposits rises above 3.2%, calculated on euribor rates plus 150 basis points and would come into effect immediately, according to Expansion, the Spanish business daily.
Under the rules, institutions offering high interest rates will have to pay an extra charge into their deposit guarantee fund.

The government hopes this will act as a disincentive and help to calm the intense competition for depositors’ funds, especially between the commercial and savings banks, that has contributed to sharply falling bank margins since the onset of the financial crisis in 2008.

Securing deposits has become increasingly important for Spanish banks as they have been practically locked out from external sources of financing for the past years.

Banks are major players in Spain’s fund management industry, but officials said they did not expect the new rules to have a big impact for asset managers. Even if the measure succeeds in dampening interest rates, the limit is unlikely to encourage the traditionally conservative Spanish investor to switch to more risky investment vehicles, officials at a major bank said.

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