Cash Ratio Deposits (CRDs) are non-interest bearing assets deposited with the Bank of England (“the Bank”) by banks and building societies. They are invested in gilts by the Bank and the income is used to finance its policy functions, in particular its efforts to secure price stability and the stability of the financial system in general, from which these institutions are key beneficiaries.
The CRD scheme was extended to include building societies, and was placed on a statutory basis, when the Bank of England Act became law in 1998. At the last review, the Government committed to review the scheme within five years. The last review was in 2018 and resulted in the CRD ratio being moved from a single fixed ratio, to a variable ratio indexed to gilt yields, re-indexing the ratio to prevailing gilt yields every six months. The Treasury, working closely with the Bank, will now begin the next review.
The review will include an assessment of the detailed arrangements of the scheme as well as the continuing suitability of the scheme itself compared to alternative sources of funding. It will also address the impact of the scheme on eligible institutions and involve a public consultation.
This statement has also been made in the House of Lords