Hacker News Reader

Comment by GreeniFi | Hacker News Reader

What is the incentive for a bank to lend at 0%?

Surely it’s more profitable to do nothing?

It's in fact more profitable to lend at 0%, because of negative interest at the central banks, negative interest for government bonds and even negative interest for certain corporate bonds. Combined with the immense cost of hoarding massive amounts of physical cash, there aren't many options left.

While a corporate bond can go sour and a government bond may well be legally wiped out, a mortgage is at least collateralized with the property. Assuming that that the negative interest rate regime continues - which it most likely will - property prices will be driven up even further. Even if the mortgage goes into default, the repossessed property may end up being worth even more at that point.

And people wonder why the price of Bitcoin is rising...

The Danish mortgage market is really strange. In practice the people buying property issues bonds in the private bond market (although in most cases it does go through an issuing bank).

So if an investor has no other opportunity than 0% for their cash it's a "good place". Many banks in Europe has negative rates on deposits so it might be the better alternative for some.

But there are no banking in a traditional way involved here where they have a product and lend to 0%.

Central Banks can enforce negative interest rates.

https://en.m.wikipedia.org/wiki/Negative_interest_on_excess_...

Sheeesh. Bad news for entrepreneurship. As due to mortgage lending rules, it’s very difficult to get a loan as a business owner rather than an employee with steady, bankable, salary

Corporate bonds are also at a record low, even so much that there’s talk of an increasing rate of zombie companies that just stay alive because of loaned money and will collapse as soon as interest rates will go up again.

It's also bad news for consumers because they cannot finance consumption with mortgages. You're never going to see consumer inflation if you're giving money to everyone except the consumers.

It's not bad news. Because interest is parasitic (it's prohibited in Islam, Judaism, and Christianity), there are other (fair) ways to become an entrepreneur. Pitch your idea to an investor (or group of investors), and have them put money into your company. If it succeeds, everyone profits, if it doesn't, you're not left with crippling usurious debt.

They charge fees to issue mortgages. The 0% rate is not actually 0%. It's probably more like 0.25-1% and the bank is making up the difference through the fees.

Denmark has had negative interest rates in the past (though typically for 10 years), so there's that hedge for starters, but there's also fees & gov subsidy/lending incentives/enforcement

The actual interest rate is -0.75%. The bank is taking 0.75%

It's effectively not 0, as explained by tveyben and others :) There's a fee that they charge and can change whenever they feel like it.

Hedge against negative rates?

It might be better in the short term, but after a while an angry mob starts banging on your doors.

Reply on news.ycombinator.com