Bank of England

11 Key excerpts on "Bank of England"

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  Banks in Crisis

  The Legal Response

  • Andrew Campbell, Peter Cartwright(Authors)
  • 2017(Publication Date)
  • Taylor & Francis

    (Publisher)

  4 It was not until 1844 that it had become what could be described as a proper central bank in the modem sense of the term with the passing that year of the Bank Charter Act.

  However, the Bank of England's role as regulator of the banking system developed without any statutory intervention until the passing of the Banking Act 1979,5 which empowered the Bank to "request information from and make recommendations to bankers, and may, if so authorised by the Treasury, issue directions to any banker for the purpose of securing that effect is given to any such request or recommendation." The Bank was only to exercise this power when it felt it was necessary in the public interest.

  The Wilson Committee's Report in 19806 described the role of the Bank of England as follows:

  The Bank has a very wide range of functions, probably wider than those of the central bank of any other major industrial country. It is responsible for the execution of monetary policy, the management of the national debt and the note circulation and administration of the Exchange Equalisation Account.... Finally, it has a specific statutory responsibility for supervision of the banking sector and a more diffuse responsibility as guardian of the good order of the financial system as a whole.

  The Banking Act 1979 was introduced as a result of the banking crises of the mid-1970s, and as a result of the First Banking Directive7 further changes followed in 1987 with the enactment of the Banking Act 1987, but in the 1990s the notorious collapses of BCCI and Barings, and the apparent failure of the Bank of England as regulator ensured that significant reform would be needed. The Bank had been severely criticised for its supervision in relation to BCCI8 and was also unable to avoid significant criticism in relation to the collapse of Barings.9

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  Central Bank Independence and the Future of the Euro

  • Panicos Demetriades(Author)
  • 2019(Publication Date)
  • Agenda Publishing

    (Publisher)

  1 Central bank roles: historical context From financing wars to inflation targeting: a brief history of central banks

  Central banks are institutions that issue currency, provide banking services to governments and commercial banks and have responsibility over monetary policy, including setting short-term policy rates (at which they provide short-term liquidity to commercial banks through monetary operations). Often central banks have responsibilities relating to financial stability, which sometimes include regulating and supervising commercial banks and, more recently, resolving banks that are failing.

  Central bank legal frameworks vary considerably from country to country, largely reflecting differences in attitudes shaped by diverse historical experiences. A key feature of the European Central Bank (ECB), unlike the United Kingdom’s Bank of England (BoE) and the United States’ Federal Reserve (the Fed), is that it is explicitly prohibited by the Treaty on the Functioning of the European Union (article 123 – known as the monetary financing prohibition) from financing government deficits. Moreover, although all three central banks have mandates in which price stability is central, price stability is the ECB’s overarching objective: it can support other goals, including financial stability, growth and employment, only to the extent that they do not interfere with price stability. By contrast, the Fed has a dual mandate set in law: it aims to maximize employment and stabilize prices (as well as moderate long-term interest rates). The Bank of England’s objectives are set annually by the government, however. Ever since the bank was granted operational independence, in 1997, the main aim of monetary policy has been the achievement of low and stable inflation; other government objectives, including employment and growth, have been subordinated to price stability – very much like the ECB. Nevertheless, although, in the BoE case, the mandate can be changed by the government in any given year, the ECB’s mandate cannot change without a revision in the TFEU; such a change requires unanimous agreement by all EU member states.

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  Banking Policy and Structure (RLE Banking & Finance)

  A Comparative Analysis

  • J Wilson(Author)
  • 2012(Publication Date)
  • Taylor & Francis

    (Publisher)

  Finally, central banks have over the years acquired a number of well-defined responsibilities as bankers to their respective national governments. As a matter of history, some institutions developed into central banks substantially because they were in origin bankers to the government. In the case of the Bank of England, for example, this would not seem too exaggerated a statement and, in some respects, there are parallels in the evolution of the former Commonwealth Bank of Australia as a central bank (after 1959, these functions passed into the hands of a separate Reserve Bank of Australia). More recently, it has been the rule to require a new central bank as a matter of course to accept responsibility for the financial affairs of its government. The reasons are not far to seek. Government transactions have become of increasing importance in influencing the working of the economy. Government balances may swing within wide limits and the flow of money to and from the government could have most disturbing effects. The institution that holds the government's account is in a strategic position for the purpose of cushioning the commercial banks against the impact of large movements of cash originating in this way. Further-more, as banker to the government, it is the obvious responsibility of the central bank to provide routine banking services, such as arranging loan floatations and supervising their service, renewal, or redemption. It will also usually provide the note issue. Equally important are the central bank's responsibilities as a specialist adviser. Much government action and related legislation will at times have important monetary consequences. For example, to budget for a deficit during a boom would obviously exaggerate the economic expansion already in progress. It is the function of a central bank to advise the government on the probable consequences of any proposed action and, where necessary, to suggest appropriate alternatives. In this role, it is desirable that the central bank should scrutinise the government's proposed actions with a certain amount of objectivity and, at times, to offer positive criticism. Moreover, if a central bank is to play its full part in the informed discussion of government policy, it must retain its right to state its point of view with vigour. Nevertheless, once a decision has been taken, the central bank will be expected to cooperate with the government in carrying out that policy, for which the government alone is ultimately responsible. In this context, it is appropriate to quote Montagu Norman's famous dictum (when speaking of the role of the Bank of England in 1926):

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  Central Banking Governance in the European Union

  A Comparative Analysis

  • Lucia Quaglia(Author)
  • 2007(Publication Date)
  • Routledge

    (Publisher)

  2 The Bank of England

  An old lady with new clothing

  The Bank of England, also referred to as the Old Lady of Threadneedle Street, is the second-oldest central bank in the world. Until the Second World War it was the most important central bank in Europe and, after the US Federal Reserve, the second most influential central bank in the world. Nowadays it is considered the main alternative to the ECB model, which has been adopted by national central banks in the eurozone.

  In the various classifications of (formal) central bank independence compiled by economists on the basis of the legal provisions for the institutional and policy framework of each central bank, the Bank of England scored very low before 1997 – it was traditionally regarded as a ‘dependent’ (or government-subordinated) central bank (cf. Alesina and Summers 1993; Cukierman 1992; de Haan and van’t Hag 1995; Eijffinger and de Haan 1996; Grilli et al. 1991) in terms of political and economic independence (or institutional and operational independence, depending on the terminology and criteria used by each classification). The Bank of England’s ranking in such classifications improved significantly after 1997, when the Bank was given operational independence in monetary policy. Its political independence also increased, and new mechanisms of accountability were set in place.

  A systematic analysis of the empirical record (1978–2005) reveals that the autonomy, policy capacity and legitimacy of the Bank of England cannot be gauged solely by examining the central bank legal framework (Forder 2001: 203). Economists’ large-scale quantitative studies understate the Bank’s operational independence before the 1997 reform, because the analytical measures used are typically formal and fail to pick up the nuances of the relationship between the central bank and the government. These studies also tend to overlook the central bank’s policy capacity in financial regulation and supervision – and hence the interaction with financial actors – because they focus mainly on monetary policy. It is worth noting that, at least according to some British central bankers, the legal provisions concerning the central bank, up to the 1997 reform, were deliberately formulated in rather ambiguous terms, and this was seen as enhancing the Bank’s room for manoeuvre rather than constraining it. Furthermore, classifications based on formal features do not take into account the central bank’s intangible assets, such as its capability to achieve its goals by ‘moral suasion’, or the effects of international institutions, such as financial supervisory regimes and exchange-rate regimes, which can provide resources (as well as additional constraints) to central banks interacting in the national arena.

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  British Banking

  A Guide to Historical Records

  • John Orbell(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Formed by merchants and financiers, the Bank of England soon obtained a monopoly in England of joint stock banking; it was Britain's first joint stock bank although its establishment was followed quickly by the formation of the Bank of Scotland in 1695. From the outset it was the government's banker, for example making interest free loans in return for renewal of its statutes. It also held government balances, handled its foreign payments, received subscriptions from investors for government securities, purchased gold and silver for the Royal Mint, and so on. From its earliest days, the Bank also acted as a commercial bank, although in recent years this function formed only a minor part of its activities. Originally it held the accounts of London-based chartered companies, merchants and, later, large manufacturing companies; it discounted their bills of exchange, made short term loans to them and provided them with other general banking services.

  An increasingly important role carried on alongside those of central and retail banking was the issue of bank notes that originally passed into circulation through loans made to the British government and through credit extended in the money market. These notes were literally promises to pay and thus were backed by substantial bullion reserves. By 1770 the bank had a virtual monopoly of note issue in London, its notes having displaced those of London's private bankers. The 1844 Bank Charter Act was designed to ensure ultimate concentration of note issue in England and Wales in the Bank's hands by restricting private issue, within prescribed limits, to those banks already issuing their own notes at the time of the passing of the Act, The issue of Bank of England notes in the provinces was stimulated by the opening of Bank branches in major regional cities, beginning in the 1820s with those in Manchester and Liverpool and followed shortly afterwards with others at Birmingham, Leeds, Newcastle and elsewhere.

  Confidence in the stability of the Bank, reflected by confidence in its note issue, led to it playing a major role in the money market and to its emergence as lender of last resort. Merchants who could not find accommodation from their private banks, especially at times of market turbulence and contraction of liquidity, sought credit from the Bank, Eventually the Bank came to act in a similar way for private banks that had run short of cash at times of panic and heavy withdrawal of deposits by customers. London private banks, and later country and joint stock banks, began to hold some of their reserves as deposits at the Bank. In the 1820s, the Bank also emerged as lender of last resort to the emerging discount houses, providing the vital mechanism of allowing the immediate repayment of short term loans made to them by private and joint stock banks.

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  The Emergence of Modern Central Banking from 1918 to the Present

  • Carl-L. Holtfrerich, Jaime Reis(Authors)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  PART I The Origins of Central Banking Passage contains an image CHAPTER ONE Bank of England Autonomy: A Retrospective Michael Collins and Mae Baker Introduction

  A critical function of history is to provide a long-term perspective for current preoccupations, to come up with historical yardsticks against which to measure recent experience. Past economic experience provides one of the essential ingredients needed for a proper assessment of current economic theory and policy. The recent tercentenary of the Bank of England (which first opened for business in July 1694) – as with the 150th anniversary of the Bank of Portugal – has offered one of those traditional occasions for retrospective contemplation on the role of a key agency responsible for the direction of a country’s economic policy: the central bank.

  The Bank of England’s three hundred years have involved many aspects of British financial development but the following four issues have been at the core of its evolution as a central bank: 1.  Prudential control of, and responsibility for, money market institutions; 2.  Exchange rate policy and international financial cooperation; 3.  Monetary control and the maintenance of price stability; 4.  Bank/government relations.

  This paper concentrates on just one issue, that of Bank/government relations, though, in fact, all are inextricably linked. We are particularly concerned to provide an historical perspective on current moves to establish greater central bank autonomy in the UK. In the next section we make some general introductory remarks about central bank autonomy and the Bank of England’s historical experience. The following two sections then deal with the post-war period, treating separately the decades of the 1950s and 1960s which were dominated by Keynesian thinking on macroeconomic management, and the period since the 1970s in which greater weight was given to the role of monetary policy in subduing inflationary pressures. As will become clear, in both these post-war periods the extent of Bank of England autonomy was for the greatest part very muted, though for different reasons. Certainly, postwar experience represents a marked decline in the extent of independence exercised in previous periods. Two further sections explore the reasons for this earlier autonomy and explain the reasons for its decline between the wars. The concluding section briefly outlines the latest changes to Bank of England responsibilities and reiterates the lessons from history: that central bank autonomy has worked in Britain only when non-discretionary rules have bound the central bank’s behaviour, and only when politicians have supported both the rules and the Bank’s behaviour within them. Up until very recent times, such political backing has been fairly nominal and in an historical context the degree of autonomy exercised by the Bank of England – at least until mid-1997 – has been limited. Inevitably, though, the effects of the changes implemented in the late 1990s are still too recent to allow for a proper assessment.

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  Sveriges Riksbank and the History of Central Banking

  • Rodney Edvinsson, Tor Jacobson, Daniel Waldenström(Authors)
  • 2018(Publication Date)
  • Cambridge University Press

    (Publisher)

  We start with the crucial relationship between the Bank of England and the Government. Like most other Central Banks, the Bank of England was, and has remained, a creation of Government. It was founded in 1694 on the basis of a quid pro quo; in exchange for providing finance, in the shape of bond purchases, to conduct war with France, the Bank of England was given * The author would like to thank the following for their constructive comments: Susan Howson, Mervyn King, David Learmonth, Ben Norman, Brian Quinn, Paul Tempest, Ryland Thomas, Marilyne Tolle, and Geoffrey Wood, and a special mention for Forrest Capie, my discussant at the earlier Stockholm Conference, who saved me from numerous errors. 143 certain special advantages; it was the only joint stock bank then allowed in England (unlike Scotland), and it was, very clearly, the Government’s pre- ferred bank. As Capie and Wood note (2015), ‘When the Bank of England was founded in 1694 it was not founded as a central bank. The concept of a central bank did not exist in the seventeenth century.’ It was established by a Parliamentary Charter, which had to be reconsidered and renewed at discrete intervals, e.g. 21 years in the 1742 Act (Clapham, 1970, pp. 95/96); such occasions of renegotiation of the Bank’s privileges naturally led the Bank to focus on its continuing relationship with the Government. We shall divide up analysis and discussion of the Bank’s ongoing relationship with Government (Section 4.2.1) into three main parts, these are: (4.2.1) Governance; (4.2.2) Debt and Cash Flow Management; (4.2.3) Macro-Monetary Policy. Then we shall turn to the Bank’s relationship with people (Section 4.3.1), under four headings: (3.1.1) The Public as Clients of the Bank as a Commercial Bank; (3.1.2) The Bank as Chief Note Issuer; (3.1.3) The Bank’s Proprietors, Shareholders; (3.1.4) The Bank’s Directors, Governors, Court and Staff.

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  The Art of Central Banking

  • Ralph G. Hawtrey(Author)
  • 2012(Publication Date)
  • Routledge

    (Publisher)

  That is the true source of its responsibility for the currency. If there were no right of issue, and the currency were based exclusively on a specie standard (the use of coin as hand to hand currency), the central bank would be absolutely dependent upon its reserves of coin to meet any increased demand for currency. This was approximately the position of the Bank of England in the nineteenth century for, though its notes were legal tender after 1833 (and were practically equivalent to legal tender before), the minimum denomination after 1829 was £ 5, and, for most of the purposes of hand to hand currency, notes could not fill the place of coin. The consequence was that the joint-stock banks relied on the Bank of England to supply them with gold coin, and the resulting liability was a very real one. That was the theme of Bagehot’s Lombard Street. In Bagehot’s view, the “natural” system of banking was that of many banks each keeping its own cash reserve, but the system of a single bank keeping the whole reserve of the country had in fact grown up, and “you might as well, or better, try to alter the English monarchy and substitute a republic, as to alter the present constitution of the English Money Market, founded on the Bank of England, and substitute for it a system in which each bank shall keep its own reserve.” T HE L ONDON D ISCOUNT M ARKET. The Bank of England was the first central bank, and its evolution was on somewhat different lines from that of later examples. Historically its rediscounting business grew up not so much with other banks as with merchants. In the eighteenth century, the London merchant would ordinarily rely on a private banker to discount his bills. If the amount of bills offered for discount became excessive, and the private bankers were unwilling to take any more, the merchants would come direct to the Bank of England. This was not a rediscounting system, but it played essentially the same part

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  Current Federal Reserve Policy Under the Lens of Economic History

  Essays to Commemorate the Federal Reserve System's Centennial

  • Owen F. Humpage(Author)
  • 2015(Publication Date)
  • Cambridge University Press

    (Publisher)

  HISTORICAL EXPERIENCE We next review some historical experience in two of the world’s major cen- tral banks, the Bank of England and the Federal Reserve. We concentrate on these two because they were the models for many other central banks, and also because they illustrate many aspects of the problems we discuss. The Bank of England was founded in 1694 out of the needs of the state to finance war. In return, the Bank was given a charter from the state that gave it a privileged position in banking in the country. The renewal of the charter clearly rested on the Bank’s satisfying the state’s require- ments. And so began a relationship of dependency. The state needed the Bank and the Bank relied on the state for its privileges. When the Bank’s charter was renegotiated in 1697, for ten years, it was given protection from competition from rivals; and its position was strengthened further in the renewal of 1708 when a fresh loan was required from the Bank. On that occasion other banks were restricted to six partners or fewer, and the Bank was given a monopoly of note issue in joint stock banking, in effect a joint stock banking monopoly. At the renewal of 1715 its privileged position was further enhanced when it was given the job of managing the government’s debt. The Bank’s position depended on its fiscal usefulness to the state. As Britain was at war for more than half of the years between 1688 and 1815 the relationship between Bank and government grew ever closer and stronger. The state needed finance for war and the Bank either pro- vided it or organized it, so that by the end of the eighteenth century the government saw the Bank as an essential component of its war finance program. In the wars with France at the end of the eighteenth century the government would take bills in large volumes to the Bank for discounting. The Bank would huff and puff a great deal but there was no question of it not complying with the state’s wishes.

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  Reforming Britain's Economic and Financial Policy

  Towards Greater Economic Stability

  • H. Treasury(Author)
  • 2001(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  6 The UK Model of Central Bank Independence: An Assessment This chapter examines the UK model of central bank independence and its roots in the analysis of past economic policy failures, as well as recent theoretical developments. It draws heavily on a lecture given by Ed Balls, chief Economic Adviser to the Treasury, to the Oxford University Business School Alumni Association in June 2001 (Balls 2001) and a forthcoming paper co- authored by Gus O’Donnell, the Treasury’s representative on the Bank of England’s Monetary Policy Committee, and Ashok Bhundia. In recent years the institutions and practice of UK economic policy have gone through a process of radical economic change and overhaul. The most decisive change in the institutional practice of UK economic policy was granting operational independence to the Bank of England to set UK interest rates. The decision to go for independence had very substantial implications for both the Treasury and the Bank of England and it overturned decades of practice and tradition. It was also a very significant constitutional change. A Chancellor and a government choosing to cede such a significant power as setting national interest rates to an unelected agency was politically and constitutionally innovative. As reported in The Times the next morning: ‘Mr Brown has signalled the most fundamental shake- up of the Bank of England since its formation nearly 303 years ago.’ It also constituted – as the House of Lords Select Committee concluded two years later – ‘a radical new departure in economic policymaking’, estab- lishing a new and distinctive UK model of central bank independence. 85 Different countries and regions have chosen and succeeded with different routes to stability, depending on their economic circumstances, history and traditions. The US, and particularly the Federal Reserve Chairman, Alan Greenspan, has established a daunting reputation for stability and far-sightedness based on the Federal Reserve model.

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  Lombard Street

  A Description of the Money Market

  • Walter Bagehot(Author)
  • 2015(Publication Date)
  • Open Road Media

    (Publisher)

  This article was much disliked by many of the Bank directors, and especially by some whose opinion is of great authority. They thought that the ‘Economist’ drew ‘rash deductions’ from a speech which was in itself ‘open to some objection—‘which was, like all such speeches, defective in theoretical precision, and which was at best only the expression of an opinion by the Governor of that day, which had not been authorised by the Court of Directors, which could not bind the Bank. However the article had at least this use, that it brought out the facts. All the directors would have felt a difficulty in commenting upon, or limiting, or in differing from, a speech of a Governor from the chair. But there was no difficulty or delicacy in attacking the ‘Economist.’ Accordingly Mr. Hankey, one of the most experienced bank directors, not long after, took occasion to observe: ‘The “Economist” newspaper has put forth what in my opinion is the most mischievous doctrine ever broached in the monetary or banking world in this country; viz, that it is the proper function of the Bank of England to keep money available at all times to supply the demands of bankers who have rendered their own assets unavailable. Until such a doctrine is repudiated by the banking interest, the difficulty of pursuing any sound principle of banking in London will be always very great. But I do not believe that such a doctrine as that bankers are justified in relying on the Bank of England to assist them in time of need is generally held by the bankers in London.

  ‘I consider it to be the undoubted duty of the Bank of England to hold its banking deposits (reserving generally about one-third in cash) in the most available securities; and in the event of a sudden pressure in the money market, by whatever circumstance it may be caused, to bear its full share of a drain on its resources. I am ready to admit, however, that a general opinion has long prevailed that the Bank of England ought to be prepared to do much more than this, though I confess my surprise at finding an advocate for such an opinion in the “Economist.” If it were practicable for the Bank to retain money unemployed to meet such an emergency, it would be a very unwise thing to do so. But I contend that it is quite impracticable, and if it were possible, it would be most inexpedient; and I can only express my regret that the Bank, from a desire to do everything in its power to afford general assistance in times of banking or commercial distress, should ever have acted in a way to encourage such an opinion. The more the conduct of the affairs of the Bank is made to assimilate to the conduct of every other well-managed bank in the United Kingdom, the better for the Bank, and the better for the community at large.’

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