Industry response

HMT review of the cash ratio deposits scheme

Views sought ahead of the five year review

We note no fundamental changes were made to the statutory cash deposit scheme in 2013 even though the regulatory landscape had changed considerably since the 2007 review.  Now is the time to make good this missed opportunity.  The scheme has in the meantime become an increasing burden on building societies.

The effects of the Bank of England’s unremunerated policy work are felt far more widely than the sterling deposit takers (essentially building societies and banks) that currently fund it.  We urge the Bank to investigate adopting the model of other central banks whose activities, almost universally, are funded from general income including that arising from seigniorage and foreign exchange reserves.  Alternatives would be (i) to abolish the scheme and spread the costs of the Bank’s policy work over all PRA fee blocks or (ii) to retain the current scheme and widen the pool to include other financial institutions that benefit from the Bank’s unremunerated work.  Some obvious examples of the latter would be wholesale or investment banks, mortgage lenders and other retail or wholesale lenders that are not also deposit takers, and also insurers. 

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