LONDON: The Bank of England asked banks on Monday how ready they are for zero or negative interest rates, following up its announcement last month that it was considering how to take rates below zero if necessary.
Other central banks have pushed rates into negative territory in an attempt to spur banks to lend more, and the BoE said in September it was looking into what such a policy might mean in Britain.
“As part of this work, we are requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these,” Deputy BoE Governor Sam Woods said in a letter to banks.
The BoE and lenders had to understand the implications of any such moves “since the MPC may see fit to choose various options based on the situation at the time,” he said, referring to the central bank’s Monetary Policy Committee.
Woods said he wanted to know if there were any technology challenges to implementing zero or negative rates.
“We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes,” he said.
The BoE set a deadline of Nov. 12 — a week after its next monetary policy announcement — for banks to respond. Most eurozone banks have held off passing negative rates on to the bulk of their retail customers despite borrowing costs being below zero for the majority of this decade.