On 24 September 2021, HM Treasury issued a consultation setting out proposed changes to the Cash Ratio Deposit Scheme.
The Cash Ratio Deposit (CRD) scheme funds the Bank of England’s (BoE) monetary policy and financial stability functions. Under the scheme, banks and building societies with eligible liabilities of more than £600 million are required to place a proportion of their deposit base with the BoE on a non-interest bearing basis. The BoE then invests these funds in interest bearing assets (e.g. gilts) and the income generated is used to meet the costs of its monetary policy and financial stability functions.
A review of the past performance of the CRD scheme found that the BoE’s income has fallen below required levels since 2018. This was primarily due to lower than expected gilt yields. Additionally, the BoE’s responsibilities have increased, resulting in increased policy costs.
In the consultation it is proposed that:
- The CRD scheme would be replaced with a new levy.
- The new levy would replace the placing of deposits with a levy of the same cohort that currently pay into the CRD scheme using the same arrangement for apportioning costs to those that pay.
- The government will continue to monitor the effectiveness of the funding model used to meet the BoE’s policy costs and will conduct a further formal review within five years and publish a report in respect of that review.
The deadline for comments on the consultation is 5 November 2021.