Europe News

Deutsche Bank CEO warns over negative rates

ECB shouldn't use negative rates: DB CEO

Juergen Fitschen, the co-CEO of Deutsche Bank, has warned that negative deposit rates - which could be introduced by the European Central Bank (ECB) - would have "unintended consequences" that could lead to further problems.

ECB President Mario Draghi said on November 7 that the central bank was "technically ready" for negative deposit rates if the economic situation warranted them. The ECB shocked markets on the same day when it cut its main refinancing rate to a record-low 0.25 percent, although it kept the deposit rate at zero.

(Read more: Deutsche Bank profit slammed by legal charges)

Speaking to CNBC, Fitschen said: "Personally, I hope it's not going to come, because even psychologically it's not sending the right message."

Fitschen said that penalizing banks for not lending enough to local businesses would be the wrong decision. He said that these banks were not lending for commercialreasons, and that forcing them to lend would have consequences, "that will later be felt in a very painful manner so that's what I've been warning about."

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The main unresolved issue in the euro zone was the connection between sovereign borrowers and the fate of the banks, Fitschen said, adding this could pave the way to future financial instability.

"I did say that once you tackle this issue you are bound to come up with a response as to whether governments are going to borrow money," he said, "And as long as there's no clear process under way, it's hard to see how this nexus could be resolved, and that always invites some kind of reaction from market participants if they believe that the quality of sovereign lending is going to deteriorate."

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