What is the Bank of England?

Published by Thomas Herold in Banking, Economics, Laws & Regulations, Trading

'Bank of England' is explained in detail and with examples in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

The Bank of England is the prestigious and incredibly old central bank for the United Kingdom. The country founded this model central bank in 1694 to promote the good of the individuals in the U.K. through maintaining both monetary as well as financial stability. The bank is often affectionately referred to as the “Old Lady” of Threadneedle Street.

The bank of England carries out the first part of its mission of maintaining monetary stability quite literally. Not only does it bear responsibility for keeping up the public’s confidence in the national bank notes. It also literally designs, makes, and issues into circulation these quality and durable bank notes with state of the art security features. These help insure the pound sterling notes are resistant against counterfeiting efforts and are simple to check.

This role extends to safeguarding the value of the notes through time. It enables businesses and consumers to save, plan, invest, and spend their pound notes confidently. The Bank carries out this crucial role of keeping up the confidence in the notes via its monetary stability goal.

They do this by ensuring stable, low prices throughout the broad spectrum of goods and services sold around the United Kingdom. The government has defined stable prices as those which include an inflation rate of two percent year on year as demonstrated by the Consumer Prices Index. The decisions to meet this objective of inflation targeting are made in the Bank of England’s Monetary Policy Committee, the MPC.

The financial crisis of 2008 demonstrated that price stability by itself will not guarantee all-around economic stability. The second mandate of the bank is to ensure financial stability. This means public confidence and belief in the important financial markets, institutions, infrastructures, and total system. Since the financial crisis, the Bank gained a few critical additional responsibilities to help it provide financial stability to the U.K.

The first of these new powers is the Bank of England’s PRA Prudential Regulation Authority. This allows it to encourage financial soundness and safety of the many crucial financial firms in this global banking center. The PRA supervises and now regulates around 1,700 different banks, credit unions, building societies, insurance companies, and major investment companies.

The second new authority is the Bank of England FPC Financial Policy Committee. This is intended to enhance and safeguard the stability of the British financial system in total. They strive to ameliorate or remove altogether the risks to the overall system. This task centers on stopping financial crises in the future, or at the least lessening their severity and frequencies.

Besides these important roles, the Bank of England has a few other tasks to foster financial stability. They provide the services of market maker and lender of last resort when there is financial stress in the system. They monitor and regulate the important clearing, payment, and settlement systems in Britain. They also labor to calmly wind down any financial institutions which are failing.

Some might feel that the many responsibilities of the bank are too vast and wide ranging. The Bank of England is confident in the advantages of doing them all under the roof of one institution. The various responsibilities and tasks need a common set of analyses, information, and skills to complete.

Many of the competing objectives have common interconnections between them. These need rapid, capable, and efficient management and decision making regarding any of the conflicting trade-offs. This makes it the ultimate task of the bank to carry out each of these roles by laboring with capable coordination. It helps the Bank of England to maximize the effectiveness of its various policies to carry out their single mission of promoting the good of the people of the U.K.

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The term 'Bank of England' is included in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.