Sounds too good to be true, right? Well of course there’s a catch, we’re talking bankers here people! The Wall Street Journal reports on the negative interest rate phenomenon plaguing Europe:
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Negative interest rates in Europe have created a previously inconceivable problem for some banks: They may soon have to pay interest to customers who borrow from them.
In countries such as Spain, Portugal and Italy the base interest rate used for many loans, especially mortgages, is Euribor, which stands for the euro interbank offered rate. Euribor is based on how much it costs European banks to borrow from each other. This benchmark and others like it have been falling sharply, in some cases into negative territory, since the European Central Bank introduced measures last year meant to boost the eurozone economy.
Because banks set interest rates on many loans as a small additional percentage above or below a benchmark such as Euribor, the tumbling rates are leaving some banks facing the paradox of actually owing interest to borrowers.