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BOE writes to banks - you ready for -ve rates?


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The Bank of England has written to UK banks asking them how ready they are if interest rates were cut to zero or turned negative.

The UK would be following countries such as Japan and Switzerland if it cut borrowing costs to such a low figure.

"We are requesting specific information about your firm's current readiness," the bank's deputy governor, Sam Woods, said in the letter to banks.

The Bank of England cut rates to the current historic low of 0.1% in March.

Mr Woods said he wanted to know if the banks would face technological challenges if rates should turn negative.

https://www.bbc.co.uk/news/business-54506853

 

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58 minutes ago, 201p said:

 

 

"We are requesting specific information about your firm's current readiness," the bank's deputy governor, Sam Woods, said in the letter to banks.

 

 

"We are requesting specific information on how relaxed and lubed up you all are about your firm's current readiness to be shafted on a massive scale," the bank's deputy governor, Sam Woods, said in the letter.

 

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The banks went through this exercise in 2007/8. At that time, there were plenty of systems that didn't support negative interest rates (including the industry standard white label eFX platform of the time), but they were all sorted back then.

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https://news.sky.com/story/the-bank-of-england-will-struggle-to-make-the-case-for-negative-rates-12102665

Banks may even start charging some savers a negative interest rate themselves. That happened when, in September last year, Jyske Bank of Denmark became the first lender in the country to charge some customers for leaving money on deposit, charging savers with more than 7.5million kronor (£927,000) an annual interest rate of 0.6%. UBS in Switzerland has done something similar for savers with more than £450,000 on deposit.

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That said, it is perfectly possible that some lenders might follow the example of Jyske Bank, which in August last year launched a 10-year mortgage with an interest rate of -0.5%. It worked by the bank reducing the amount left outstanding on the loan by more than the mortgage borrower repaid each month.

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19 hours ago, AWW said:

The banks went through this exercise in 2007/8. At that time, there were plenty of systems that didn't support negative interest rates (including the industry standard white label eFX platform of the time), but they were all sorted back then.

Off topic, but it reminds me of the system Morrisons had back in a day, which would only allow 3-digit store IDs at most. The database would only handle ID of 999 at a maximum, all input fields would only allow 3 characters etc, because obivously, who would ever have 1000+ stores? :P

When they started expanding their network of M-Local convenience stores, they turned to us to help them fix it... by adding another digit. We spent endless hours discussing it with them, trying to convince them to maybe perhaps use a regular integer type, the work necessary would be exactly the same anyway. They were all like "nah, 4 digits will last us forever".

I wonder if any updates to banking systems didn't introduce a similar floor for interest rates. "They literally cannot go below -0.5%, the Physics doesn't allow that!".

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