REVIEW OF CASH RATIO DESPOSIT SCHEME

The conclusions and recommendations of a Government review of the cash ratio deposit scheme for financial institutions were published today.

There will now be a consultation on: raising the minimum threshold at which banks and building societies are required to make deposits; whether there are any technical aspects of the operation of the scheme that could be improved; and a proposal to enhance the transparency of scheme.

The key conclusions of the Review are:

The cash ratio deposit scheme continues to be a suitable method of funding Bank of England sterling liquidity, monetary policy and financial stability operations.
The definition of eligible liabilities, from which deposits are calculated, should not be brought into line with the definition of deposits used by the Financial Services Authority (FSA) as a basis for calculating the fees it collects from deposit taking institutions. This is because the cash ratio deposit scheme is aimed at sterling deposit taking institutions, whereas FSA regulatory activity, and its definition of deposits, also covers foreign exchange deposits.
The ratio for calculating deposits should remain at 0.15 per cent. The Government will keep the ratio under review.
The minimum threshold for making deposits should be raised to £500 million, removing 18 institutions from the scheme and benefiting all remaining contributing institutions by reducing the level of their deposits by £150,000 each.
The Bank should consider ways in which the transparency of the scheme could be enhanced, e.g. by publishing a more detailed breakdown of expenditure by function. The Government will continue to monitor the effect of the cash ratio deposit scheme and will conduct a further formal review at the latest in 2008.

The proposal to raise the minimum threshold for making deposits will require a change to secondary legislation under the Bank of England Act 1998. The Treasury is consulting publicly about this proposal and inviting views on other changes that the review has proposed. The consultation period will be from 1 August to 31 October 2003.

NOTES FOR EDITORS

1. Cash ratio deposits are non-interest bearing assets deposited with the Bank of England by banks and building societies. They are used by the Bank to finance its unremunerated activities, in particular its sterling liquidity operations and its efforts to secure price stability and the stability of the financial system in general.

2. The cash ratio deposit scheme was placed on a statutory basis when the Bank of England Act became law in 1998. Paymaster General Dawn Primarolo announced a review of the operation of the statutory scheme in its first five years on 25 February 2002 (Hansard col 11WS).

3. The review was led by a steering group comprising : Professor Forest Capie (Faculty of Finance, Cass Business School); Sue Owen (Director, Macroeconomic Policy and International Finance, HM Treasury); and Clifford Smout (Finance Director, Bank of England).

4. Further detail of the conclusion and recommendations of the review, together with details of the consultation announced today, are available:

- on the internet at www.hm-treasury.gov.uk.
- by e-mail from CRD-review@hm-treasury.gov.uk.
- by post from David Curtis, Debt and Reserves Management Team, HM Treasury, 1 Horse Guards Road, London SW1A 2HQ.

5. Media enquiries should be addressed to Simon Moyse at the Treasury press office on 020 7270 4420.

6. Non-media enquiries should be addressed to the Treasury Public Enquiry Unit on 020 7270 4558.

7. This press release and other Treasury publications and information are available on the Treasury website at www.hm-treasury.gov.uk. If you would like Treasury press releases to be sent to you automatically by e-mail you can subscribe to this service from the website.

Press Notices index 2003 July to December