"It is important for the Bank, PRA, and firms to understand the implications of these potential approaches to implementing a zero or negative Bank Rate"
The Bank is asking firms to provide information on what operational preparations they would need to make in the event that the Bank’s Monetary Policy Committee considers a zero or negative policy rate. The deadline for responses is Thursday 12 November 2020.
In August, the Bank of England’s Monetary Policy Committee (MPC) noted that it would continue to assess the appropriateness of a negative official Bank Rate alongside all of its other tools.
The letter reads: "For a negative Bank Rate to be effective as a policy tool, the financial sector – as the key transmission mechanism of monetary policy – would need to be operationally ready to implement it in a way that does not adversely affect the safety and soundness of firms.
"This engagement is not asking firms to begin taking steps to ensure they are operationally ready to implement a negative Bank Rate.
"We recognise that a negative policy rate could have wider implications for your firm’s business and your customers. The Bank and PRA will consider the wider business implications, including on financial stability, safety and soundness of authorised firms and pass-through to the wider economy. This letter, however, is seeking information to understand firms’ operational readiness and challenges with potential implementation, particularly in terms of technology capabilities.
"Responding to this letter and the structured survey questions attached will help us and firms to identify whether there are any technical operational challenges associated with the implementation of a zero or negative Bank Rate, and to consider how best to prepare and prevent any unintended operational disruption that could be associated with a change should the MPC decide it was appropriate.
"As part of this work, we are requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these.
"It is important for the Bank, PRA, and firms to understand the implications of these potential approaches to implementing a zero or negative Bank Rate, since the MPC may see fit to choose various options based on the situation at the time. We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes."
