Banks not ready for negative rates, warns NatWest chairman 

The Bank of England is checking banks’ preparedness for negative rates, having already cut them to a record low

The chairman of Royal Bank of Scotland owner NatWest has admitted that lenders are not ready for negative interest rates just days after the Bank of England asked bosses about their preparedness for the unprecedented move. 

Sir Howard Davies, who earlier this year urged Threadneedle Street to lift its ban on bank dividends, said there would be “technical issues and many contractual issues” if the controversial policy came into force. 

Dropping rates below zero means banks would be charged for hoarding cash rather than lending it out, which could result in businesses and ultra-wealthy customers with large balances facing fees for deposits. 

Such a move requires a huge amount of preparation from the lenders themselves as their systems were designed to only deal with positive interest rates.  

Sir Howard made clear in an interview with Bloomberg Radio on Thursday that he was against an interest rate cut to below zero, saying “we’re not completely ready for it”. 

The Bank of England has already slashed rates to an all-time low of 0.1pc, wrecking banks’ profits and landing savers with a return of almost zero.  

Policymakers have given mixed messages in recent weeks about the possibility of a move to negative rates. But the Bank of England’s letter to banking chiefs on Monday gave the clearest indication yet that it was seriously considering turning rates negative for the first time in its history. 

In the letter, Bank deputy governor Sam Woods said lenders must release details about their readiness to deal with a zero bank rate, a negative bank rate or a tiered system of reserves remuneration. 

However, Governor Andrew Bailey sought to play down concerns in the industry after the letter was made public, arguing that Threadneedle Street was “not near and haven't addressed whether we should use them”.

Fellow rate-setter Jonathan Haskel said the Bank had an “absolutely open mind” on the policy.