Bank Reporting Forms, Definitions and Validations
Form ER - Frequently Asked Questions

The primary objective of the ER return is to achieve the most accurate calculation of effective interest rates. Checks against other returns are of secondary importance. In this situation the most accurate rates will be achieved by reporting gross average balances and gross interest accruals, and this is our preference. However, we are aware that in certain cases this may not be possible, and we will allow such balances to be reported net if gross information is unavailable. In such cases the interest accruing on the net balances should be reported. 

Clients of some banks are able to "pool" credit and debit balances in different locations, sometimes outside the UK, before applying a net interest amount. In some cases these balances are physically transferred each day and the interest is posted to that account. In other cases, the clients' balances remain in their original location, and the net interest amount is applied to one account. In each case net balances are reported to the Bank on other returns. Please advise on appropriate treatment for the ER. 

Again, if banks are able to report gross balances and accrued interest to the original economic sector, please do so, with the exception of those external to the UK (which are excluded since the ER is restricted to sterling business with UK residents). If not, reporting banks should contact the Bank of England for further advice.

• New deposit accounts opened
• New loans advanced
• Renegotiations of existing deposits and loans
• Additional deposits into existing accounts
• Further advances

In response to comments from reporting banks (including at the 31 March 2003 briefing seminar), balanced with monetary policy users' needs, this has been limited to:

• New deposit accounts opened
• New loans advanced
• Renegotiations of existing household deposits and loans (i.e. excluding corporate renewals)
• Additional corporate deposits into existing accounts (i.e. exclude new household deposits into existing accounts)

This narrower requirement does not prevent reporting banks retaining the existing, broader, definition if they prefer. Banks are expected to inform the Bank of England of the exact coverage adopted. Banks should be aware that, should the UK join the single currency, they would be bound by ECB requirements.

As shown on the form, the range of instruments for which new business rates are required is itself limited to:

• Time deposits with fixed original maturity
• Loans and advances, with
  • Public corporations
  • Private non-financial corporations
  • Households and individual trusts
  • Non-profit institutions serving households

Outstanding business interest rates must be derived as a function of average daily balances and interest flows, as documented in the ER definitions. For interest rates on new business reporting banks may choose one of two options:

As the function of new deposits (or loans) and the first day's interest accrued. For each new business transaction this involves recording the new deposit (loan) and the one day's interest accrual. Column A would be calculated as the sum of all new deposits (loans) divided by the number of days in the month. Column B would be the sum of the one-day interest accruals recorded for each new deposit (loan). Column D is the sum of new deposits (loans) during the month. Column C would be calculated in the usual way, ie:

As the weighted average interest rate on new deposits (loans) during the month, input directly into Column C. This is calculated by multiplying each new deposit (loan) by the (annualised) interest rate applicable on the transaction date, and dividing by the sum of new deposits (loans) during the month. In this case Columns' A and B would be left blank. Column D is the sum of new deposits (loans) during the month.

(a) Yes. The borrower has consciously made a new interest rate agreement.
(b) No. The transfer has occurred automatically, without any new agreement on the part of the borrower. If a fixed rate mortgage product reverts to the bank's standard variable (or equivalent) rate then that mortgage should be reported as a floating rate product in line 55.

How should we treat accounts ( for example, current accounts with overdraft facilities) which can fluctuate between credit and debit balances?

The credit and debit balances, with their applicable interest accruals, should be treated separately. While in credit these are deposits, and while in debit they are loans (usually overdrafts).

Any account on which no interest has been applied during the reporting period shall be classified as non-interest bearing. This will include clients who regularly repay their complete balance before interest becomes payable, and those on interest-free incentive arrangements. All other accounts should be classified as interest bearing in that period, and the total interest applied in the month should be included in Column B. In giving this advice the Bank accepts that the interest applied will include an element of backdated interest relating to purchases in earlier periods. We expect the aggregate effects of this anomaly to offset from month to month. 

There are no validations between the ER and balance sheet returns. The comparable balance sheet items listed in the ER definitions are a guide to the relevant instrument/sector classification. These classifications are consistent. The Bank will periodically compare average balances reported on the ER with equivalent spot balances reported on balance sheet returns, but these comparisons can only be indicative.

Sector and instrument classification is consistent between the ER and other Bank of England returns. Cash ISAs should be classified as time deposits on the ER. 

Effective interest rates provide important information to UK monetary policy decision makers. The ER return is designed to meet these monetary policy needs, while minimising changes necessary if/when the UK enters the euro-area.

Each euro-area National Central Bank (NCB) has been legally required to supply interest rate information to the European Central Bank (ECB) on a monthly basis since February 2003. However, the ECB regulation allows individual NCBs some flexibility in selecting reporting institutions, and in the methodology for calculating average interest rates.

Column C should be calculated from unrounded data in columns' A and B. Figures in columns' A and B should rounded after column C has been calculated, and before the ER return is submitted.

On some household savings products interest does not accrue, since it's level is unknown until a later date. Examples include equity-linked deposits where the interest depends on the performance of shares, and bonus accounts which reward customers with higher interest and/or bonuses for limiting the number of withdrawals. How should interest of these products be applied on the ER return?

Where banks are unable to accrue interest flows on a monthly basis interest should be included on the ER return in the period in which it is applied. This treatment is consistent with the PL return.