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Major banks report 135% increase in income from Bank of England reserves

1 May 2024

New data published by the Treasury Committee shows NatWest, Barclays, Lloyds and Santander received more than £9 billion in interest on Bank of England reserves in 2023 – a 135% increase on the previous year.

The figures are revealed in a series of letters sent to the Committee by bosses at four of the major banks.  

Under quantitative easing, the Bank of England created £895 billion of new money in the form of central bank reserves held by commercial banks, of which around £700 billion remains in circulation. The Bank pays interest on those reserves at Bank Rate, currently 5.25%. This has generated considerable income for banks as a result of the sharp increase in interest rates since 2021. The Treasury is ultimately liable for these payments as it indemnifies the QE programme.

During the Treasury Committee inquiry into the Bank’s quantitative tightening programme, some evidence submitted to MPs suggested changing the rules on how bank reserves generate interest in order to reduce the amount paid out by the Bank of England. MPs on the cross-party Committee concluded they did not support this measure as they believe taxes on banks should be set through Parliament in a Finance Bill. 

In the correspondence, bank bosses set out the steps they’ve taken to pass through better savings rates for customers. This includes a significant uptick in the amount NatWest and Santander are paying customers in interest following ardent campaigning by the Committee.  

The letters also contain data on the banks’ mortgage repossession rates and their criteria for closing branches.    

The Committee recently concluded gathering evidence as part of its inquiry into whether small and medium-sized businesses have adequate access to financing. The report is set to be published this Spring. 

Chair's comments

Chair of the Treasury Committee, Dame Harriett Baldwin, said:  

“These results signal a bit of progress from banks in giving customers with savings a better deal. The Committee has been very vocal about high street banks’ slowness on this issue. I am pleased to see some effort is being made to pass through competitive rates for our constituents and that consumers are shopping around more. 

What this data also shows is the staggering scale of unanticipated income high street banks are bringing in, with no work required, as a result of increased interest rates. 

Although the Committee raised a number of concerns about the losses now being incurred by quantitative easing and tightening, we concluded that the goalposts should not be moved for lenders now that bond sales are running at a loss.” 

Further information

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