By
Maarten van Tartwijk
connect
Aug. 28, 2014 11:21 a.m. ET
AMSTERDAM—Dutch banks are steering large amounts of cash away from the European Central Bank in response to the ECB's move to adopt negative rates on bank deposits, but they aren't using the money to boost lending and growth.
The ECB in June became the first major central bank to adopt a negative rate on bank deposits in an extraordinary step to stave off the threat of low inflation in Europe. Hoping to boost lending to a credit-starved economy, the central bank lowered the rate at which banks can borrow, while cutting its deposit rate to minus 0.1%, effectively charging banks to hold their cash at the ECB.
Dutch banks, which account for a large portion of ECB deposits, said in their recent earnings reports that the rate cut prompted them to withdraw large sums of excess cash from the ECB. But instead of boosting lending to businesses, the banks said they parked most of the money at other 'safe havens.'
"The banks from the 'north' of the euro zone were those that still had the biggest amount left in the deposit facility," said Silvia Merler, an associate fellow at the Bruegel think tank in Brussels. "So basically the effectiveness of [the negative deposit rate] has to be assessed against what they do," she added.
Rabobank Group, one of Europe's best-capitalized banks, said it has withdrawn a total of €40 billion ($53 billion) in recent months and moved it to other large central banks like the Bank of England, the Swiss National Bank SNBN.EB -0.18% and the Federal Reserve.
"At least there, you don't have to pay to park your money," said Chief Financial Officer Bert Bruggink.
ING Groep ING +0.22% NV and ABN Amro Group NV said they withdrew billions of euros and that they invested some of the money in government bonds and other financial instruments that are considered safe but still offer some return.
Harald Benink, a professor of banking and finance at Tilburg University in the Netherlands, said Dutch lenders are seeking to strengthen their buffers and that they are wary of increasing lending in light of the weak European economy and the continuing tensions over the Ukraine crisis.
"The financial crisis has showed that buffers can vanish rapidly," Mr. Benink said. "The money can be gone before you know it," he added.
The ECB declined to comment.