Cash Ratio Deposits (Value Bands and Ratios) Order 2008

I thank the Minister for introducing the order. I will not give him a lot of trouble on it but I have one or two questions. I was grateful for his clear explanation of cash ratio deposits which are one of the more arcane bits of the Bank of England’s arrangements, representing a compulsory, interest-free deposit by the banking community with the Bank. If CRDs did not exist, clearly the Bank would have to be funded in some other way and since it is not selling any service that anyone would voluntarily buy, the only likely alternatives would be a statutory levy or grant in aid. The rather convenient argument for CRDs is that they enhance the independence of the Bank but the truth is that they avoid explicit and doubtless controversial charging mechanisms or, alternatively, increasing public expenditure. It is also an especially convenient outcome from CRDs that if they are set at a level which produces a surplus, which they have, the Treasury gets to grab half the surplus as a dividend. The Minister did not mention that in his explanation of the financial system which applies in the Bank of England. So the Treasury has an incentive to set CRD levels at too high a level in order to create a surplus. Indeed, the Bank may well have an incentive to maintain the CRD level because it avoids getting into all those messy discussions with the financial community about what your level of costs should be. The Minister explained that the Treasury did some kind of consultation on the CRD system.