Sam Woods, head of the bank’s Prudential Regulation Authority, has written to bank bosses to request information about their readiness for a range of policy moves, including a tiered strategy towards rates.

The letter is likely to feed speculation that the bank is preparing cut interest rates into negative territory even though Andrew Bailey, the governor, has attempted to downplay market expectations that such a move is approaching.

It marks the first public confirmation that the BoE is assessing the financial system’s ability to cope after asking lenders privately in the summer about how they would deal with negative rates.

Commercial banks have been preparing for rates below zero since May, when Mr Bailey confirmed for the first time the bank was actively reviewing negative rates. The BoE slashed the base rate to a record low of 0.1% in March to support the economy throughout the COVID-19 crisis.

In the letter, Mr Woods wrote: “We are requesting specific information about your firm’s current readiness to deal with a zero bank rate, a negative bank rate, or a tiered system of reserves remuneration — and the steps that you would need to take to prepare for the implementation of these.”

Policymakers are especially worried about the impact of negative interest rates on bank’s computer systems. Mr Woods said: “We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes.”

In a questionnaire the bank released alongside the letter, it asked lenders about the limitations of their systems and the time and cost of any changes that would need to be made to accommodate negative rates, The Times reports. 

The BoE also asked lenders about the maximum number of decimal places their systems can handle, such as rates of 0.001% and 0.00001%, as well as a tiered approach, where some reserves earn negative rates and others higher. 

Mr Bailey urged that the review should not be interpreted as a sign that the bank is on the brink of implementing the change. He said: “We have to ask the question, ‘If they’re in the toolbox, can we use them?’ But we are not near, and we haven’t addressed the question (of) should we use them. 

Money market investors are pricing in the introduction of negative rates in the UK in 2021. It would deal a severe blow to British banks’ business models, already under significant pressure since the 2008 financial crisis by rates being kept at rock-bottom levels.

A senior banking executive told The Times recently that “infrastructure in the UK is not geared up for negative rates” and that “modifying systems could take 12 months”.

In the letter, Mr Woods added that the BoE’s work was “not indicative” that rates would go negative. He said: “This engagement is not asking firms to begin taking steps to ensure they are operationally ready to implement a negative bank rate.”