News Release
Cash Ratio Deposits
31 March 1998
The Bank of England has announced today that the cash ratio will be reduced from 0.35% of eligible liabilities to 0.25% with effect from 1 April 1998.
Notes for Editors
UK banks authorised under the Banking Act 1987 (and UK branches of European authorised institutions) with eligible liabilities of over £10 million, averaged over six-month periods, hold non-interest bearing deposits with the Bank of England in order to secure the income and resources of the Bank. These are referred to as cash ratio deposits. The Bank of England Bill, currently before Parliament, contains provisions to put on a statutory basis arrangements for the placing of cash ratio deposits with the Bank and to give the Chancellor of the Exchequer the power to set the ratio.
H M Treasury are currently considering responses to the consultation document they issued on the new arrangements. No decision has yet been made on the rate that will apply under the new legislation when it comes into force.
The cash ratio (the proportion of eligible liabilities required to be held in cash ratio deposits) was last changed in January 1992 when it was reduced from 0.40% to 0.35%. Eligible liabilities have increased in real terms since the last review of cash ratio deposits was made in 1996; the main factor in the increase has been the demutualisation of some building societies.
The repayment to each individual bank will be based on its average eligible liabilities reported in the six months to end-September 1997. This will result in a repayment to the banking system of over £700 million.
Since cash ratio deposits were introduced in 1981, the Bank has set the ratio to be observed by institutions for which Northern Ireland is the principal place of business in the United Kingdom at 0.25%. This remains unchanged.
