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Interest earned by Britain’s biggest banks on their Bank of England reserves rose 135 percent last year to more than 9 billion pounds, according to data published on Wednesday.
NatWest, Barclays, Lloyds and Santander received a combined £9.23 billion in interest on central bank deposits in 2023, more than double what they earned the previous year, according to figures released by the House of Commons Treasury Select Committee.
Interest rates paid by the BoE on commercial banks’ reserves, which are ultimately backed by the Treasury, have risen sharply in recent years as the central bank raised its key interest rate to 5.25 percent to bring inflation back under control.
Dame Harriet Baldwin, chair of the committee, said the data showed “the staggering level of windfall that major banks are making as a result of increased interest rates, with no work required.”
According to the figures, interest income from BoE reserves for Lloyds rose by £1.8bn year-on-year to £2.6bn in 2023, while payments from Santander and NatWest rose by £1.2bn to £1.9bn £bn and £2.9bn rose respectively. Barclays reported that its interest payments rose by £1.1 billion to £1.9 billion.
The revelations were made in letters written to the committee by the bosses of the four banks, which had come under pressure to pass on the benefits of the higher interest rate environment to savers. Last year, the Financial Conduct Authority called on Britain’s biggest banks to act faster and enforce better savings rates for their customers.
The letters said banks had worked to give customers a fairer deal, noting that customers had shifted money to higher-yielding products over the past year.
“I’m pleased that some effort is being made to enforce competitive rates for our constituents and that consumers are shopping more,” Baldwin said, adding that the letters represent “a small step forward from banks in providing better savings to customers.” signaled action.”
The committee also found a “significant increase” in the interest rate NatWest and Santander paid their customers.
The revelations will bring greater scrutiny to the BoE’s decision to pay interest on major banks’ entire reserves as part of its quantitative easing program.
When the Bank of England first introduced quantitative easing it was profitable due to low interest rates, but since it has reached 5.25 percent it is now making a loss. The New Economic Foundation, a think tank, has suggested that the central bank limit the amount of interest it pays to commercial banks to save taxpayer money.