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Bank of England asks banks if ready for negative interest rates

The issue of negative interest rates could become a reality for the U.K. The BOE has contacted banks asking how ready they are if the country were to go to zero or negative interest rates.

In a letter from the BOE, deputy BOE governor Sam Woods said the central bank is "requesting specific information about your firm's current readiness to deal with a zero bank rate, a negative bank rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these," according to a report in CNBC.

An accompanying questionnaire asked banks how their retail and wholesale business's IT systems could cope, and how much time and money it would cost to make short-term "tactical" and permanent "strategic" changes.

Banks earn money from interest and negative rates would hit profitability, but Wood's letter made no specific mention of this, focusing instead on the preparedness of lenders.

Other central banks have pushed rates into negative territory in an attempt to spur banks to lend more, and in September, the BOE said it was looking into what such a policy could mean in Britain.

U.K. banks are already under pressure to help households and businesses struggling with the pandemic. They also could face a reduction in access to markets in the European Union when Britain's post-Brexit transition period expires.

The BOE set a deadline of Nov. 12, a week after its next monetary policy announcement, for banks to respond to the letter.

Governor Andrew Bailey has said the BOE's assessment of negative rates does not mean it will cut rates below zero.