Banks need to prepare for negative rates Business

The Bank of England has told lenders they must be ready to introduce negative rates within six months if the UK economy takes a turn for the worse, in a potential blow to millions of struggling families.

The controversial policy would further hurt savers who have suffered low rates since the financial crisis, while financial experts have warned it could herald the end of free banking.

The Bank has already cut interest rates to just 0.1% since Covid hit, but launched a consultation on an unprecedented sub-zero dip with more than 160 banks and building societies last fall as she scrambled for more ammunition to fuel the recovery.

Negative rates are seen as a last-ditch effort to protect a flat economy. They mean that banks have to accumulate cash on deposit instead of lending it.

While that doesn’t automatically mean that banks would in turn start charging regular customers for their cash, lenders such as HSBC have already warned that account fees may be an option in the future.

Policymakers have ruled out a reduction below zero over the next six months, saying faster change could pose “significant” risks to the “safety and soundness” of banks, with concerns focused on IT systems. banks that are unable to handle the negative numbers. .

Instead, the branch of the Bank’s Prudential Regulatory Authority ordered companies to “put themselves in a position to be able to apply a negative bank rate at any time after six months.”

Andrew Bailey, the Bank’s governor, pointed to recent IT fiascos in the banking sector – such as the botched TSB upgrade in 2018 – as reasons of caution if banks were forced to charge negative rates “without perform rigorous tests, trials, etc. wait “.

He said: “We know, unfortunately, that there are other well-researched and high-profile examples of banks changing their systems getting into pretty tough situations and experiencing outages which are obviously very damaging to the customer and ultimately. for the banks themselves, so we don’t want that to happen.