It emerged last week that UBS is planning to charge its wealth clients, those with more than SFr2m ($3m) of deposits with the Swiss bank, a negative interest rate. Credit Suisse is thinking of doing the same. Other private banks already do this.
With the European Central Bank expected to move its rates further into negative territory in the coming weeks, the phenomenon seems likely to spread.
In this Alice in Wonderland world, characterised by its vast post-crisis monetary policy experiment, we really have gone down the rabbit hole.
Negative rates are supposed to stimulate the economy, incentivising investment by making it less attractive to hold cash and spurring demand by making credit cheaper. But evidence of the theory working in practice is far from conclusive. Certainly Europe's bankers are squealing, as they feel margins squeezed by low rates on lending and a reluctance to pass on negative rates to depositors.
Last week famously blunt ING boss Ralph Hamers excelled himself, all but calling the ECB idiotic for planning to shift rates further downwards. "The negative rate environment is making consumers so uncertain about their financial environment that they're starting to save more rather than less," he said.
Hamers has a point. Rather than encouraging people to borrow and spend, the data suggests nervous eurozone consumers are hoarding. Eurostat reports the eurozone household savings ratio is at a five-year high of nearly 13 per cent.
A similar but more dramatic phenomenon seems to be in evidence among the big wealth managers.
One reason why UBS and CS are planning to pass on negative rates is that wealthy clients' obsession with cash has become such a large problem for them. UBS reckons 26 per cent of its clients' assets are held in cash. At CS, the proportion is 29 per cent.
This runs counter to the theory that investors right around the world are hungry for investment returns. Starved of decent yields on bonds, they have supposedly been drawn into riskier asset classes.
There is clear evidence of this happening among institutional investors. The flow of pension fund money into any asset that promises to beat zero-rate bonds has been so dramatic that equities, junk bonds, property, private equity and a host of other more abstruse areas of investment have spiralled in value — and to such an extent that they look highly vulnerable to any shock: US recession; no-deal Brexit; more extreme US-China trade tensions; an escalating stand-off between Iran and the west.
This indeed is one theory why the Swiss banks' wealth clients are being so cautious.
Wealth advisers say clients have been missing out on returns for a decade, fearful that the 2008 crash will be replicated in the next recession. But at this point they are probably being perfectly rational in showing reluctance to invest at the top of the market.
There may also be a regional bias. Ultra-wealthy Swiss clients, surrounded by anaemic European economic performance, are more cautious than bullish Americans.
Certainly some rival banks report very different risk appetites. Raymond James, a US wealth manager, has seen clients push their cash holdings to record lows of about 6 per cent in the US and below 5 per cent in the UK, as they desperately seek out returns.
Who's to say which stance is right? The downturn will come but it may be some time away. And the "opportunity cost" of staying in cash could be large. "As long as the music is playing, you've got to get up and dance." So, infamously, said Chuck Prince, Citigroup's former boss — ultimately to the cost of his job and the viability of his bank.
What, then, is the solution? Clients keen to maintain their cautious, cash-based approach, but dodge a negative interest rate, could bear this in mind. For SFr1,000 a year, your typical Swiss private bank will give you a cubic metre of vault storage for your valuables.
Thanks to Switzerland's high-value SFr1,000 notes, that should be enough space to salt away close to SFr1bn in hard cash. The fee is a sight cheaper than the SFr7.5m charge that a 0.75 per cent negative interest rate would imply.
Hiding money in vaults is probably not the productive dynamic that policymakers were hoping for but it's starting to make sense. Welcome to the rabbit hole.
Written by: Patrick Jenkins
© Financial Times