Shares in Lloyds, Natwest and HSBC jumped as Reeves appeared to rule out a Labor raid on the lender

Banks breathed a sigh of relief after Rachel Reeves appeared to rule out an overhaul of the way lenders receive interest at the Bank of England.

Shares in UK high street lenders were among the biggest gainers on Wednesday in a broader market rally. Lloyds rose 2.1 per cent, while Natwest rose 1.8 per cent. HSBC gained 1.6 percent.

The market moves came after Reeves, the shadow chancellor, said she had “no plans” to change the way interest is paid on the roughly £770bn of commercial bank deposits held by top-tier borrowers at the Bank of England.

“The payment of interest on reserves is part of the transmission mechanism of monetary policy; it’s one of the ways that higher interest rates filter into the real economy,” she added.

The financial system was flooded with new reserves during the Bank of England’s various rounds of quantitative easing. The Bank of England pays interest on these reserves, which are ultimately funded by the taxpayer.

As interest rates have risen over the past two years, higher class borrowers have seen higher income from keeping money in the bank. According to the Finance Committee, Natwest, Barclays, Lloyds and Santander earned a combined £9bn in interest from the Bank of England.

Figures from across the political spectrum, including Gordon Brown and Reform UK, suggest the Treasury could save billions by making at least some of those reserves pay zero interest.

“I don’t think it’s without danger,” Reeves said.

Reeves’ comments were met with approval in the industry. “A change to the current approach would have real consequences for the UK economy and would likely result in consumers and businesses facing higher banking costs,” said David Postings, chief executive of UK Finance. AM city

“In effect, it would also be an additional tax on the banking sector, which already pays both Corporation Tax Bank Surcharge and Bank Levy, making the UK less competitive internationally.

One banking sector source also argued that the layering of reserves would have “adverse implications for the competitiveness of the financial sector when supporting growth is the real priority”.

Jonathan Pierce, an analyst at Deutsche Numis, said Reeves’ announcement was “good news” for banks and should allow investors to focus on an improvement in financial performance in the autumn.

However, he warned that this may not be the end of the story. “None of this means the problem has completely gone away,” Pierce said. “The layering of reserves or higher direct taxation of banks may ultimately prove too attractive for a future government that will face difficult fiscal decisions.”

Andrew Bailey has also consistently opposed the idea, describing it as a tax on banking. He said this would require a fundamental rethinking of how monetary policy works.

“Paying the Bank Rate out of reserves anchors the conduct of monetary policy,” Bailey told the House of Lords in February.