In today's world, while people are waiting for economic conditions to improve, a serious question arises: why should we provide an annual subsidy of £24 billion to profitable commercial banks? The Bank of England, as the central financial institution, allocates this subsidy to commercial banks to help stabilize the economy by controlling borrowing rates. However, is this approach still logical?
A Subsidy That Can Easily Be Eliminated
The Bank of England pays an interest rate of 3.75% on the reserves of commercial banks. Given that the total of these reserves is about £640 billion, this subsidy amounts to £24 billion annually. This substantial amount is paid from public resources to banks that have achieved significant profitability themselves. In fact, this subsidy was created to control borrowing rates, but can we not achieve this goal in a more efficient and economical way?
Changing the Approach, Reducing Costs
Instead of subsidizing all reserves, the Bank of England could only pay interest on a marginal portion of these reserves. By designating a portion for each bank and specifying that any reduction in reserves starts from this level, it would still be possible to control borrowing rates while significantly reducing public costs. If this portion is 20%, a net saving of around £19 billion per year would be achieved.
The main question is whether this subsidy will continue or if the time has come to end this practice and instead allocate public resources in more optimal ways? With increasing economic pressures, perhaps decision-makers need to think about supporting ordinary people instead of subsidizing banks. In a world where people are struggling to meet their basic needs, can we continue such policies?
