Bank of England asks banks how ready they are for sub-zero rates

Financial Indicators4 hours in the past (Oct 12, 2020 04: 20AM ET)

© Reuters. FILE PHOTO: The Bank of England is seen in the City of London

By Huw Jones and William Schomberg

LONDON (Reuters) – The Bank of England asked banks on Monday how ready they are for zero or negative hobby rates, following up its announcement final month that it used to be taking into consideration discover how to retract rates beneath zero if well-known.

Different central banks have pushed rates into negative territory in an are trying and spur banks to lend more, and the BoE talked about in September it used to be having a watch into what such a policy might presumably presumably mean in Britain.

“As segment of this work, we are inquiring for relate data about your agency’s sleek readiness to deal with a 0 Bank Payment, a negative Bank Payment, or a tiered system of reserves remuneration – and the steps that you would per chance presumably deserve to retract to characteristic up for the implementation of those,” Deputy BoE Governor Sam Woods talked about in a letter to banks.

The BoE and lenders needed to comprehend the implications of this form of strikes “since the MPC might presumably discover about match to resolve varied alternate choices in response to the negate at the time,” he talked about, relating to the central bank’s Monetary Protection Committee.

Woods talked about he wished to know if there were any abilities challenges to enforcing zero or negative rates.

“We are also looking out for to comprehend whether or not there’s seemingly to be seemingly for non permanent alternate choices or workarounds, besides to permanent methods adjustments,” he talked about.

The BoE characteristic a time restrict of Nov. 12 – a week after its subsequent monetary policy announcement – for banks to answer.

Money markets final week pushed serve bets that the BoE would in the reduction of rates beneath zero. Customers discover about rates falling beneath zero in Can also 2021, as a substitute of March.

The BoE in the reduction of its benchmark rate to assert low of 0.1% in March to help the financial system thru the coronavirus disaster.

Its subsequent trudge is broadly anticipated to be an extend in its 745 billion-pound ($972.00 billion) bond-shopping for programme in November.

Sterling and British govt bonds were tiny modified in early alternate on Monday.

Governor Andrew Bailey has talked about the BoE’s assessment of negative rates used to be not a cost that it would in the reduction of rates beneath zero, and Woods echoed those comments in his letter.

Banks originate money from hobby and negative rates would hit profitability, but Wood’s letter made no relate level out of this, focusing as a substitute on the technical preparedness of lenders.

An accompanying questionnaire asked banks how their retail and wholesale alternate’s IT methods might presumably cope, and how valuable time and money it would payment to bear non permanent “tactical” and permanent “strategic” adjustments.

Banks are already beneath stress to help households and companies fighting the pandemic. They also might presumably face a low cost in catch reliable of entry to to markets in the European Union when Britain’s post-Brexit transition period expires.

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