Bank of England
The Bank of England (BoE) is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker and debt manager, and still one of the bankers for the government of the United Kingdom, it is the world's second oldest central bank, after Sweden's (1668). It is considered to be one of the wo
Overview
The Bank of England (BoE) is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker and debt manager, and still one of the bankers for the government of the United Kingdom, it is the world's second oldest central bank, after Sweden's (1668). It is considered to be one of the world's "Big Four" central banks. The bank was privately owned by stockholders from its chartering in 1694 until its nationalisation in 1946 by the Attlee ministry. In 1998 it became an independent public organisation, wholly owned by the Treasury Solicitor on behalf of the government, with a mandate to support the economic policies of the government of the day, but independence in maintaining price stability. In the 21st century the bank took on increased responsibility for maintaining and monitoring financial stability in the UK, and it increasingly functions as a statutory regulator. The bank's headquarters have been in London's main financial district, the City of London, since 1694, and on Threadneedle Street since 1734. It is sometimes known as "The Old Lady of Threadneedle Street", a name taken from a satirical cartoon by James Gillray in 1797. The road junction outside is known as Bank Junction. The bank is custodian to the official gold reserves of the United Kingdom.
Functions
According to its strapline, the bank's core purpose is 'promoting the good of the people of the United Kingdom by maintaining monetary and financial stability'. This is achieved in a variety of ways:
Monetary stability
Stable prices and secure forms of payment are the two main criteria for monetary stability.
Stable prices
Stable prices are maintained by seeking to ensure that price increases meet the Government's inflation target. The bank aims to meet this target by adjusting the base interest rate (known as the bank rate), which is decided by the bank's Monetary Policy Committee (MPC). (The MPC has devolved responsibility for managing monetary policy; HM Treasury has reserve powers to give orders to the committee "if they are required in the public interest and by extreme economic circumstances", but Parliament must endorse such orders within 28 days.) As of 2024 the inflation target is 2%; if this target is missed the Governor is required to write an open letter to the Chancellor of the Exchequer explaining the situation and proposing remedies. Other than setting the base interest rate, the main tool at the bank's disposal in this regard is quantitative easing.
Secure forms of payment
The bank has a monopoly on the issue of banknotes in England and Wales and regulates the issuance of banknotes by commercial banks in Scotland and Northern Ireland. Scottish and Northern Irish banks retain the right to issue their own banknotes, but they must be backed one-for-one with deposits at the bank, excepting a few million pounds representing the value of notes they had in circulation in 1845. In addition the bank supervises other payment systems, acting as a settlement agent and operating Real-time gross settlement systems including CHAPS. In 2024 the bank was settling around £500 billion worth of payments between banks each day.
Financial stability
Maintaining financial stability involves protecting the UK's savers, investors and borrowers against threats to the financial system as a whole. Threats are detected by the bank's surveillance and market intelligence functions, and dealt with through financial and other operations (both at home and abroad). The majority of these safeguards were put in place in after the 2008 financial crisis:
Regulation
In 2011 the bank's Prudential Regulation Authority was established to regulate and supervise all major banks, building societies, credit unions, insurers and investment firms in the UK ('microprudential regulation'). The bank also has a statutory supervisory role in relation to financial market infrastructures.
Risk management
At the same time, the bank's Financial Policy Committee (FPC) was set up to identify and monitor risks in the financial system, and to take appropriate action where necessary ('macroprudential regulation'). The FPC publishes its findings (and actions taken) in a biannual Financial Stability Report.
Banking services
The bank provides wholesale banking services to the UK Government (and to over a hundred overseas central banks). It manages the UK's Exchange Equalisation Account on behalf of HM Treasury and it maintains the government's Consolidated Fund account. It also manages the country's foreign exchange reserves and is custodian of the UK's (and others') gold reserves. The bank also offers 'liquidity support and other services to banks and other financial institutions'. Commercial banks customarily keep a sizeable proportion of their cash reserves on deposit at the Bank of England. These central bank reserves are used by the banks to settle payments with one another; (for this reason the Bank of England is sometimes called 'the bankers' bank'). In exceptional circumstances, the Bank may act as the lender of last resort by extending credit when no other institution will. As a regulator and central bank, the Bank of England has not offered consumer banking services for many years, but it still does manage some public-facing services (such as exchanging superseded bank notes). Until 2017, Bank staff were entitled to open current accounts directly with the Bank of England and were given the unique sort code of 10–00–00.
Resolution
Under the terms of the Banking Act 2009 the bank is the UK's Resolution Authority for any bank or building society judged 'too big to fail'; as such it is empowered to act in the event of a bank failure 'to protect the UK's vital financial services and financial stability'.
Historic services and responsibilities
Between 1715 and 1998, the Bank of England managed Government Stocks (which formed the bulk of the national debt): the bank was responsible for issuing stocks to stockholders, paying dividends and maintaining a register of transfers; however in 1998, following the decision to grant the bank operational independence, responsibility for government debt management was transferred to a new Debt Management Office, which also took over Exchequer cash management and responsibility for issuing Treasury bills from the bank in 2000. Computershare took over as the registrar for UK Government bonds (gilt-edged securities or 'gilts') from the bank at the end of 2004. The bank, however, continues to act as settlement agent for the Debt Management Office and custodian of its securities. Ever since its foundation in 1694, the bank had provided a retail banking service for the Government; however in 2008 it decided to withdraw from offering these services, which are now provided by a range of other financial institutions and managed by the Government Banking Service. Until 2016, the bank provided personal banking services as a privilege for employees. Previously, the bank had maintained private and commercial accounts for all sorts of customers, including individuals, small businesses and public organisations; but a change of policy following the First World War saw the bank increasingly withdraw from this type of business to focus more clearly on its central banking role.
Founding
Following the Revolution of 1688, which brought William III and Mary II jointly to the British throne, the establishment of a national bank came to fruition. During the Nine Years' War (1688–1697), the Royal Navy was defeated by the French Navy in the 1690 Battle of Beachy Head, causing consternation in the government of William III of England. The English government decided to rebuild the Royal Navy into a force that was capable of challenging the French on equal terms; however, their ability to do so was hampered both by a lack of available public funds and the government's low credit. This lack of credit made it impossible for the English government to borrow the £1.5m that it wanted to use to expand the Royal Navy.
Wikipedia contributors · Bank of England · revision 1381788355 · CC BY-SA 4.0 · Plain text extracted and formatting adapted; tags derived from linked topics.