Cash Ratio Deposit Scheme
Danny Alexander (Chief Secretary, HM Treasury; Inverness, Nairn, Badenoch and Strathspey, Liberal Democrat)
Cash Ratio Deposits (CRDs) 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 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. The scheme was reviewed in 2003, when the threshold above which institutions are obliged to place deposits with the Bank of England, was amended following a public consultation. The outcome of the following CRD review in 2008 resulted in a reduction in the CRD ratio to 0.11% from 0.15%. As part of the CRD scheme review in 2007-08 the Government made a commitment to conduct a further formal review at the latest in five years’ time. The Treasury, working closely with the bank, will now begin that 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 the eligible institutions. The broad conclusions of the review will be the subject of a public consultation.