British Banks Warn BoE of Pain of Negative Rates

UK banks have hit out at the prospect of negative interest rates, saying the policy would slash their earnings and limit their ability to absorb an expected torrent of coronavirus-related loan losses, the Financial Times reported. With big British lenders on track to boost reserves to £18.5bn for bad debts in 2020, the Bank of England’s admission this week that it was eyeing negative rates for the first time in its 324-year history has caused deep concern in the sector. BoE governor Andrew Bailey said on Wednesday that a further cut in the central bank’s current 0.1 per cent rate was under “active review”. It is keen to spur companies’ spending following a collapse in economic activity during the Covid-19 lockdown. Negative rates are already in place in Scandinavia, Switzerland and the eurozone. Such a move in the UK would narrow lenders’ net interest margin — the difference between what they charge borrowers and pay out on deposits — and depress already fragile profitability in an industry that has struggled to recover from the financial crisis. Read more