By Luke Jeffs
LONDON, Oct 9 (Reuters) - Some of the world's largestcustody banks have started to charge fund management clients fordeposits in Danish kroner and Swiss francs, showing how the eurozone crisis is affecting their business.
The banks' action follows interest rate cuts by Denmark andSwitzerland to protect their currencies from investors seekingsafe haven from the euro. But the rate cuts have made itdifficult for the custody banks, wh i ch administer funds forasset managers and pensions, to cover their costs in certainareas.
They have traditionally covered costs by lending out thecash deposited with them to other banks as short-term loans. Butthis revenue source in the kroner and franc has dried up nowthat Denmark and Switzerland have cut rates.
As a result, Bank of New York Mellon , Euroclear, RBCDexia and State Street have introduced negativeinterest rates, which effectively mean they are charging clientsfor holding their cash.
The banks said they have taken the step to offset the costof administering the accounts when those countries' centralbanks have interest rates at close to or below zero.
"State Street has been closely monitoring central bankactivity, swap markets and the overnight cash markets, and basedon market conditions will start to apply negative interest ratesin two currencies, Danish kroner and Swiss francs beginning onNovember 1, 2012," the bank said in a statement.
Spokesmen for BNY Mellon, Euroclear and RBC said they hadintroduced negative interest rates in recent months.
A spokesman for RBC added: "If these markets returnto positive nominal interest rates, we would reflect thischange in the interest rates applicable to client balances."
(Editing by Jane Merriman)
Keywords: BANKS DEPOSITS