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Munich Re rebels against ECB with plan to store cash in vaults

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(Bloomberg) — Munich Re is resorting to the corporate equivalent of stuffing notes under the mattress as the world’s second-biggest reinsurer seeks to avoid paying banks to hold its cash.

The German company will store at least 10 million euros ($11 million) in two currencies so it won’t have to pay for the right to access the money at short notice, Chief Executive Officer Nikolaus von Bomhardsaid at a press conference in Munich on Wednesday. “We will also observe what others are doing to avoid paying negative interest rates,” he said.

Institutional investors including insurers, savings banks and pension funds are debating whether to store cash in vaults as overnight deposit rates fall deeper below zero and negative yields dent investment returns. The costs associated with insurance and logistics may outweigh the benefits of taking this step. Munich Re’s move comes after the European Central Bank last week cut the rate on the deposit facility, which banks use to park excess funds, to minus 0.4 percent.

Munich Re’s strategy, if followed by others, could undermine the ECB’s policy of imposing a sub-zero deposit rate to push down market credit costs and spur lending. Cash hoarding threatens to disrupt the transmission of that policy to the real economy.

A spokesman for the ECB declined to comment.

Munich Re wants to test how practical it would be to store banknotes having already kept some of its gold in vaults, von Bomhard said. This comes at a time when consumers are increasingly using credit cards and electronic banking to pay for transactions. Deutsche Bank AG Chief Executive Officer John Cryan in January predicted the disappearance of physical cash within a decade.

Munich Re also said on Wednesday that it expects its profit to decline this year as falling prices for its products and low interest rates weigh on investment earnings.