Economics in a picture
Penalty on super deposits in 2011-12 was a precursory macroprudential policy measure in Portugal
In 2011, Portuguese banks were aggressively trying to raise more deposits, which, together with very unfavorable macroeconomic conditions, was deteriorating their results. Furthermore, the higher deposit rates were passing-through to the loan rates, thus contributing to further deepen the recession. It was in this context that, in October 2011, Banco de Portugal imposed a measure of deduction from own funds to banks that offered super deposits (deposits with excessive remuneration), having adjusted it in April 2012. The motivation for this measure was of a macroprudential nature, as it addressed a significant financial stability concern, although at the time the current institutional framework of macroprudential policy was not yet in place.
It is hard to prove the existence of causality, and in the case under examination the Portuguese economy was experiencing changing conditions which may help in large part to explain the return of deposit rates to normal levels. Nevertheless, there are evidence that this measure contributed to contain the war for deposits amongst Portuguese banks, as a significant decrease in the amount of super deposits occurred just after November 2011 and April 2012. For the Portuguese banking system as a whole, and taking into account that monthly contributions add to the deduction from own funds during a period of one year after these deposits were contracted, the line of the right scale of figure provides an estimate of the amount of capital charge effectively imposed by Banco de Portugal (maximum of €million 211 in September 2012).
Regarding the specific specification of the measure, it should be noted, first, that the deduction from own funds would have been preferable to the additional collection of contributions to the deposit guarantee fund, an option taken in Spain, in particular because it did not exempt from penalty the deposits above 100 thousand euros. Second, the very particular circumstances that existed at the time would have prevented the materialization of the risks associated with measures that limit interest rates on deposits, namely the cartel behavior on the part of banks, obstacles to the functioning of monetary policy, flight deposits for other applications or undesirable redistributive effects.
For more details, see Esteves and Pinheiro (2020): “The capital surcharge on banks offering ‘superdeposits’: an early example of macroprudential policy measure in Portugal", published in Banco de Portugal Economic Studies (Vol. 6, N. 3).
Prepared by Paulo Soares Esteves and Maximiano Pinheiro. The analyzes, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem.
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