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Deposits (Eligible Liabilities)

Under the Cash Ratio Deposit (CRD) scheme, banks and building societies place non-interest bearing deposits at the Bank of England. The Bank invests the 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. With the effect of 1 June 1998 the Bank of England Act 1998 placed the scheme on a statutory footing. From next year the Bank of England will be making significant changes to its operations in sterling money markets, in particular the introduction of remunerated voluntary deposits which banks and building societies will be able to place with the Bank. As a result, my written Ministerial Statement of 13 July 2005 announced that (as required by the Bank of England Act 1998) the Treasury would begin consultation on its proposal to amend the definition of Eligible Liabilities (ELs) for CRDs. The consultation ended in September and the Treasury published its response. The responses to the consultation recognised and understood the rationale for making the change and accepted that including voluntary deposits in the definition of ELs would have a net neutral effect on the overall levels of CRDs. As the proposal requires a change to secondary legislation made under the Bank of England Act 1998, tomorrow I will be laying before Parliament a Statutory Instrument scheduled to come into force on 1 March 2006. Principally the Statutory Instrument will ensure that voluntary deposits do not count as an offset within the calculation of ELs on which CRDs are based.