The Bank of England will announce on Tuesday that it will close its doors at the end of the month.
The announcement comes as the bank is also planning to reduce its staff by around half in the next three years, as it seeks to cut its borrowing costs.
In a blog post, the bank’s chief executive, Mark Carney, said the Bank would reduce its workforce by around 25 per cent, but it would continue to lend to banks to provide additional capital.
“While this will not reduce the total size of our balance sheet, it will allow us to focus on improving the profitability of our businesses,” he said.
But the bank will have to make tough choices about how to handle the fallout of the economic crisis.
Mr Carney said the bank would reduce the size of its balance sheet by “roughly a quarter” as it sought to maintain its balance of payments, which are the main source of funding for the bank.
He said the “strong fundamentals” of the Australian economy meant the bank could borrow and spend in the future, while the banking sector was resilient.
Under current rules, the Bank can borrow and borrow at a rate of 0.25 per cent.
It can also lend to corporations at an interest rate of 1.5 per cent per annum.
The Bank has previously said it would consider whether it should open up its balance sheets to commercial lending, but said at the time that it had not decided whether to do so.
At the moment, the Commonwealth Bank is the only bank that can lend to a commercial bank, and has a policy of lending only to commercial banks.
While Mr Carney said this was a “significant policy shift”, he also said the policy was not likely to affect the Bank’s balance sheet in the short term.
‘A significant shift’The Commonwealth Bank has long maintained that the Bank is a safe, sound and reliable institution.
This was highlighted in the early years of the crisis, when the bank had an 80 per cent credit rating.
Its chief economist, Mark Smith, said that under current rules the Bank could borrow at 1.50 per cent and lend at 0.75 per cent a day, but this would not allow the Bank to “continue to support the economy as a whole”.
“Our balance sheet is safe, we have an excellent balance sheet,” he told the ABC.
“[We have] a stable outlook for our business and the long-term health of the economy.”
Mr Smith said the Commonwealth’s balance sheets were in good shape.
However, he said there was a risk of the Bank becoming “over-leveraged” because of its size.
And he said the economic recovery had also put the Bank in a weaker position to respond to future shocks.
“If the economic and financial environment is not conducive to the banking system becoming sustainable, then we will be unable to maintain our position,” he warned.
Topics:business-economics-and-finance,government-and/or-politics,government,financial-market,capital-markets,bank-of-australia,wealth-2020,afghanistan,albania,united-kingdom,austriaFirst posted October 19, 2020 18:28:25Contact Tim MurchisonMore stories from New South Wales