The Bank of England is the central bank of the United Kingdom.
It was initially a private bank in 1694 and then nationalized in 1946 and in 1997 gained operational independence to set monetary policy.
Main target of Bank of England activity:
Monetary stability implies stable prices and confidence in domestic currency. Stable prices indicator is the target level of inflation set by the government. Target level of inflation is ensured by means of monetary policy.
Financial stability implies effective support of the flow of money funds in economics and confidence in financial mediators. Such a target can be achieved by the following means:
- The Bank financial activity including the role of lender of last resort;
- Committee decisions regarding financial policy;
- Prudential regulation of financial enterprises;
- The Bank’s roles as a licensing authority, bank supervision and regulation of key payments, clearing and settlement infrastructure.
The Bank of England key functions
The government of the country has always been and remains the main client of the Bank of England. As a result, the bank began to execute the functions of the central bank. Besides, it fulfills many other objectives for the government, related to standard relations between the bank and its client.
The major function of the Bank of England is the control over the national debt. As a rule, the British government expenditures exceed income received in the form of revenues. Daily flow of funds between the market and the government is reflected on the account of the National Loans Fund – NLF of the bank of England.
This direct financing is of short-term nature and the Bank of England’s principle role, which acts on behalf of the Treasury office, is raising funds. The bank controls new governmental debt and the existing rate of debt. Three major forms of permanent loans are: treasury bills, government securities (known as top-quality securities) and exchange market loans.
Second in importance, after the government, come clients of the Bank of England – commercial banks. They use its services the way private persons employ their banks services.
The importance of such reserves also includes the possibility to use them on the foreign currency market to support the stability of the pound.
Currently, in order to avoid the reduction of these reserves, the bank increases short-term interest rate in the country. As is appropriate it is also responsible for the loans aquired from central banks of other countries.
The bank of England is the primary source of cash money. If the country requires more cash for transactions, for instance during Christmas commerce, the Bank just buys bills at discount market for cash; if less money is required, the bank sells the bills.
The bank of England is the only issuing institution in England and Wales (coins are issued by the Royal Mint on behalf of treasury and this is not within cognizance the Bank of England). All the profit from the notes issuing goes to the government. The Bank of England has been issuing its notes during 300 years.
One of the of the Bank of England’s two main targets is the monetary stability support. Monetary stability represents stable prices and the confidence in the domestic currency Stable prices are determined by the target inflation rate set by the government, which the Bank aims to achieve by way of implementation of the decisions adopted by the Monetary Policy Committee, MPC.
The monetary policy of Great Britain is normally executed by means of the price of lending money – interest rate. The basis for the Bank of England is the rate of sale and purchase agreement. It means the interest rate used by the Bank of England for short-term loans provided by securities. This interest rate is referred to as the base rate in Great Britain. (Repo – repurchase agreement is the agreement for the seller to buy back the securities from purchaser at a set price at a later date).
In March 2009 the Monetary Policy Committee (MPC) announced a reduction of the Bank rate to 0.50%. Besides, the Committee decided that the rate can not be reduced below that level and so in order to provide further monetary stimulation of the economy the decision of buying financial assets was approved. Operations of this kind are often called (omit as) the policy of quantitative easing.
Initially the volume of the buying program comprised 75 billion pounds, which were used for purchasing debt obligations of the British government. By November 2009 the volume was gradually increased up to 200 billion pounds. Later, the MPC continued to increase the purchase amount and presently the program volume is equal to 375 billion pounds.
The aim of purchases was and remains the money investment into the economy to secure the nominal demand growth.
In August of 2013 the MPC presented some clear instructions for the future enforcement of monetary policy. The MPC is at least intending to keep the present intensive stimulation of monetary policy until the economic recession is substantially minimized, in case it is not associated with high risks for price and financial stability.
Low inflation is not a goal in itself but remains to be an important helping factor in supporting the long-term economic stability with stable growth and employment.
As a result of the large-scale reforms of the financial market governing board in 1998 performed by the Labor party Cabinet, the Bank of England’s supervisory functions over banks and financial market were delegated to the Financial Services Authority (FSA) – the central supervisory body on the British market of financial services.
The FSA is a state body responsible for the regulation of financial, investment and banking services industry in the United Kingdom.
The basis for management and accounting was founded by the Bank of England law of 1998.
Some changes to it were adopted in the Banking Act of 2009.
A supervisory board is responsible for the bank administration apart from the monetary policy development. The members of board of governors are appointed by the Queen. Nine directors are non-executive. One of them is chosen by the Chancellor of the Exchequer chairman of the board of governors.
Governors are appointed by the Queen. Each governor is appointed for the term of 8 years, vice governor for 5 and director for 3. The board of directors should have its sitting no less than once a month.
The complete staff of the Court of directors is available on the official site of the Bank.
1. Monetary policy committee (MPC)
The MPC makes the decision regarding main interest rates and the program of buying assets in Great Britain. The Bank of England Monetary Policy Committee meets monthly for a two-day meeting, usually on the Wednesday and Thursday after the first Monday of each month.
However exceptions are also possible when MPC meets on Tuesday and on Wednesday. The meeting result becomes known at 12:00 (GMT) on the second day of the sitting. The minutes of the MPC meetings are published two weeks (on Wednesday) after the interest rate decision.
- Mark Carney (Governor, Term of appointment: 1 July 2013 - 30 June 2021). At the request of the Chancellor, the Governor has agreed to serve until 31 January 2020.
- Ben Broadbent (Deputy Governor, Term of appointment: 1 July 2014 - 30 June 2019)
- Sir Jon Cunliffe (Deputy Governor, Term of appointment: 1 November2013 - 31 October 2023)
- Andy Haldane (Chief Economist and Executive Director, Term of appointment: 1 June 2014 - 11 June 2020)
- Jonathan Haskel (External member Term of appointment: 1 September 2018 - 31 August 2021)
- Sir Dave Ramsden (Deputy Governor, Term of appointment: 4 September 2017 - 3 September 2022)
- Michael Saunders(External member, Term of appointment: 9 August 2016 - 9 August 2019)
- Silvana Tenreyro (External member, Term of appointment: 5 July 2017 - 4 July 2020)
- Gertjan Vlieghe (External member, Term of appointment: 1 September 2015 - 31 August 2021)
2. Oversight Committee
The oversight committee is a sub-committee of the Court of directors. The main functions of the committee are the control over the Bank activity’s results in accordance with its goals and strategies. The bank’s main targets are the monetary policy, financial stability and any tasks set by the Court of Directors.
3. Financial Policy Committee, FPC
FPC is a subcommittee of the Court of directors. It consists of the Governor and three deputy governors, executive director for financial Conduct Authority, FCA, executive director for financial stability and four non-executive directors appointed by the Chancellor. FPC supports the Bank’s goal of financial stability by means of monitoring and measures to reduce the financial system risks.
4. Financial System Advisory Committee
FSA committee consults and monitors the Banks financial stability in terms of functions that are outside of the FPC competence. Such functions include supervision of the payment system, regulation of central counterparties and accounting systems and the Bank’s role regarding special licensing regime.
5. Renumeration Committee
RC consults the Court of Directors regarding job payments and other bank executive team compensations, in reference to managing, executive directors, management advisers and outside members of the FPC and MPC committees. This Committee also consults regarding all the issues related to the job compensations of non PRA executive directors.
6. Audit and Risk Committee
The ARC major functions are to assist the Court of directors and execution of its obligations of providing an efficient financial accounting system, internal control and risks management in accordance with the Bank of England Act of 1998 to fulfill “ surveys of internal control over the bank’s financial reporting in order to provide due performance of its financial functions”. The committee is responsible for providing independent guarantees to the Court of directors, that the Bank’s risks and control procedures are adequate.
7. Nominations Committee
NC was founded in 2010. The main goal of the Committee is the preparation of recommendations for the Court of directors regarding the appointment of executive directors, secretary, internal Bank’s audit as well as appointments in subcommittees
8. The Prudential Regulation Authority, PRA
This authority is responsible for the supervision of banks, building societies, credit unions, insurers and major investment firms. PRA regulates the total of 1700 financial companies. The PRA has two statutory objectives: to promote the safety and soundness of these firms and, specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders.
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