What does the Bank of England do?

David Beard

Written by David Beard on March 20, 2019

Updated August 7, 2019


One of the oldest banks in the world, the Bank of England was formed in 1694 to act as a private bank to the English government. It remained in private ownership until 1946 when it was nationalised. In 1998 it became an Independent Public Organisation.

As such, it is owned by the Treasury Solicitor but acts on behalf of the UK government with responsibility for setting monetary policy, regulating banks, issuing bank notes (in England and Wales), and maintaining financial stability across the United Kingdom.

While Sweden’s central bank, the Riksbanken, is actually the oldest in the central bank in the world, most other central banks are modelled on the Bank of England.

Regulating Banks

Through the Prudential Regulation Authority (PRA), the Bank of England is responsible for regulating and supervising a range of financial institutions including banks, building societies, investment firms, credit unions and insurers.

The role of the PRA is to ensure that the financial institutions operate in ways which protect their customers’ money and promote competition / reduce the risk of monopolies forming or institutions colluding to the detriment of the public.

Through regulation and supervision, they set standards financial institutions must follow and monitor them against these; in this way, they help maintain financial stability across the economy as a whole.

To ensure financial stability, the Bank of England not only monitor the financial institutions’ current situation but assess them against potential future risks. This allows them to intervene at an early stage, reducing the risks to the UK economy.

The PRA is not there to stop banks or other financial institutions failing, but it is responsible for ensuring any failure causes the least amount of disruption possible, and that critical financial services can continue to operate.

Issuing Bank Notes

The Bank of England is one of eight banks in the UK that issues bank notes. It is the only bank that issues banknotes in England and Wales; in Scotland and Northern Ireland it is responsible for regulating the issuing of bank notes (which is done through seven commercial banks).

Responsibility for bank notes includes designed and printing them. More importantly, however, the Bank of England is responsible for making it difficult, if not impossible to, produce counterfeit copies by continuously redesigning them to incorporate the latest anti-forgery methods such as the introduction of the polymer as opposed to paper notes in 2016.

Because it’s impossible for the Bank of England to remove all forgeries from circulation they provide training to better help people recognise counterfeit currency.

Monetary Policy

The Bank of England is responsible for setting the UK’s monetary policy. This includes making changes to the interest rates (which they can move up or down as needed) and implementing measures such as quantitative easing during times of financial crisis. The bank reviews the monetary policy every six weeks; this is done through meetings of their Monetary Policy Committee.

One of the key factors influencing the Monetary Policy Committee decisions in recent months, if not the last two years, has been the impact of Brexit and how this will affect the economy. Currently, they are adopting a ‘wait and see’ approach, though this may change depending on the deal agreed with the EU.

Maintaining Stability

During times of economic uncertainty, such as the financial crisis of 2007, the Bank of England is responsible for ensuring that the UK’s financial services run smoothly and that people’s money is protected. They do this by continuously monitoring the country’s financial situation and ensuring there is sufficient money in the system to avoid the risk of collapse.

It is not, however, the responsibility of the Bank of England to provide financial institutions at risk of collapse with additional cash, though the bank will provide support to help manage any institutional failure.

To help manage the smooth flow of cash through the banking system, thereby maintaining stability, the Bank of England acts as a settlement agent for a number of payment systems, processing £500 billion in payments each day between banks and other financial institutions. Payments cover everything from salaries to the sale of goods and services as well as credit and debit card transactions.

The Bank of England monitors the financial systems through the Financial Policy Committee, which is responsible for taking action as needed to reduce the risk of bank failure of a financial crisis.

Responsibility for the Bank of England

The Bank of England is led by the Governor of the Bank of England, who is appointed by the Chancellor of the Exchequer. The Governor is a civil servant. There are also three Deputy Governors responsible for monetary policy, financial stability and markets and policy. The Chancellor of the Exchequer appoints them.

The Governor of the Bank of England is in this post for a fixed period. The current Governor is Mark Carney, who will step down in January 2020.

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