Charles Bean pours cold water on negative rate plan

Deputy Bank of England governor Charles Bean has spoken of the potential legal issues associated with introducing negative rates for banks that hold reserves with the Bank. 

Speaking at the Institute of Economic Affairs conference, Bean (pictured) highlighted the legal issues associated with having different rates on tranches due to bank contracts for mortgages and borrowing above a specific bank rate.

'This is one of the reasons I personally don't like this route. It creates all sorts of legal issues. Which is the relevant rate? Which is the bank rate if you have multiple bank rates for all intents and purposes? You can see a strong reason not to go down this route.

'You would have to see big benefits somewhere else to compensate. I can't see quantitatively how these rates can be different,' he told delegates.

He also stressed that Paul Tucker's suggestion of negative rates from Tuesday's Treasury committee meeting must be looked at in the context of what was being discussed.

'We had a similar wide ranging discussion back in June of last year considering the advantages and disadvantages of broadening the range of assets that we buy.

'There is nothing to stop us having negative rates on commercial bank reserves and a variation in the way interest rates are paid or the remuneration of reserves, perhaps with different rates on different tranches, so doing the sorts of things we were talking about.'

In this context Bean said it would be likely that the lowest or most negative rates would be those with the lowest margins.

Nonetheless he was keen to stress that this was blue sky thinking and that the drawbacks associated had been considered.

'Should we be considering policies in this area? The fact that we decided at that committee meeting that none looked sensible and have drawbacks. That is the important message to take away, so any suggestion we have a plan to introduce negative rates immediately, I should make it clear this is absolutely not the case.

'The issue that Paul Tucker is interested in is how we can get more traction in monetary policy and we will consider loooking at those options and all the other options that may open to us. The fact we will consider them does not mean we are about to do them.'