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Cash Ratio Deposits

Under the cash ratio deposit (CRD) scheme, banks and building societies place non-interest bearing deposits at the Bank of England. The Bank invests these deposits and uses the income earned to fund the costs of the Bank's sterling liquidity, monetary policy and financial stability operations, which benefit sterling deposit-takers. The Bank of England Act 1998 placed the scheme on a statutory footing with effect from 1 June 1998. As a result of significant changes the Bank of England will make to its operations in sterling money markets from next year, in particular the introduction of remunerated voluntary deposits which banks and building societies will be able to place with the Bank, the Treasury proposes to amend the definition of eligible liabilities for CRDs. These proposed amendments principally seek to ensure that voluntary deposits would not count as an offset within the calculation of eligible liabilities on which CRDs are based thereby avoiding an unnecessary reduction in the Bank's CRD income. The proposal requires a change to secondary legislation under the Bank of England Act 1998 and also requires the Treasury to consult those who are likely to be materially affected by the change and other persons it sees fit. This consultation has begun as of today and will conclude at the end of September.