The Bank of England has reached out to all Prudential Regulation Authority-regulated insurers in an effort to understand firms’ operational readiness for the possibility of zero to negative interest rates.
In August, the BoE’s Monetary Policy Committee (MPC) noted that it would continue to assess the appropriateness of a negative official bank rate.
Although the decision has yet to be made, it is clear that the MPC is more seriously considering the option.
Interest rates in the UK and elsewhere have reached historically low levels since the financial crisis in 2008.
As a result of the lockdown policies implemented in response to the COVID-19 pandemic, some central banks have implemented negative interest rates as a monetary policy tool.
The BoE notes that, for a negative bank rate to be effective as a policy tool, the financial sector would need to be operationally ready to implement it in a way that does not adversely affect the safety and soundness of firms.
The responses to BoE receives will be used to assist the forming of a structured view on readiness and contingency plans.
This will inform the MPC about the operational aspects of a negative policy rate, and the Bank and PRA’s understanding of the implications for firms and the UK financial system.
