Bank Of England
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bank of england
The Bank of England 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 still one of the bankers for the Government of the United Kingdom, it is the world's eighth-oldest bank. It was privately owned by stockholders from its foundation in 1694 until it was nationalised in 1946 by the Attlee ministry.
The bank became an independent public organisation in 1998, 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.
The bank is one of eight banks authorised to issue banknotes in the United Kingdom, has a monopoly on the issue of banknotes in England and Wales, and regulates the issue of banknotes by commercial banks in Scotland and Northern Ireland.
The bank's Monetary Policy Committee has devolved responsibility for managing monetary policy. The 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. In addition, the bank's Financial Policy Committee was set up in 2011 as a macroprudential regulator to oversee the UK's financial sector.
The bank's headquarters have been in London's main financial district, the City of London, 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.
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consumer banking services for many years, but it still does manage some public-facing services, such as exchanging superseded bank notes.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 2016, the bank provided personal banking services as a privilege for employees.
To induce subscription to the loan, the subscribers were to be incorporated by the name of the Governor and Company of the Bank of England. The bank was given exclusive possession of the government's balances and was the only limited-liability corporation allowed to issue bank notes. The lenders would give the government cash (bullion) and issue notes against the government bonds, which could be lent again. The 1.2 million was raised in 12 days; half of this was used to rebuild the navy.
The establishment of the bank was devised[clarification needed] by Charles Montagu, 1st Earl of Halifax, in 1694. The plan of 1691, which had been proposed by William Paterson three years before, had not then been acted upon. Fifty-eight years earlier, in 1636, Financier to the king, Philip Burlamachi, had proposed exactly the same idea in a letter addressed to Francis Windebank.[verification needed] He proposed a loan of 1.2 million to the government; in return the subscribers would be incorporated as The Governor and Company of the Bank of England with long-term banking privileges including the issue of notes.
The bank initially did not have its own building, first opening on 1 August 1694 in Mercers' Hall on Cheapside. This however was found to be too small and from 31 December 1694 the bank operated from Grocers' Hall, located then on Poultry, where it would remain for almost 40 years.
In 1700, the Hollow Sword Blade Company was purchased by a group of businessmen who wished to establish a competing English bank (in an action that would today be considered a "back door listing"). The Bank of England's initial monopoly on English banking was due to expire in 1710. However, it was instead renewed, and the Sword Blade company failed to achieve its goal.
The Bank of England moved to its current location in Threadneedle Street in 1734 and thereafter slowly acquired neighbouring land to create the site necessary for erecting the bank's original home at this location, under the direction of its chief architect John Soane, between 1790 and 1827. (Herbert Baker's rebuilding of the bank in the first half of the 20th century, demolishing most of Soane's masterpiece, was described by architectural historian Nikolaus Pevsner as "the greatest architectural crime, in the City of London, of the twentieth century".)
The credit crisis of 1772 has been described as the first modern banking crisis faced by the Bank of England. The whole City of London was in uproar when Alexander Fordyce was declared bankrupt. In August 1773, the Bank of England assisted the EIC with a loan. The strain upon the reserves of the Bank of England was not eased until towards the end of the year.
The Bank Charter Act 1844 tied the issue of notes to the gold reserves and gave the bank sole rights with regard to the issue of banknotes in England. Private banks that had previously had that right retained it, provided that their headquarters were outside London and that they deposited security against the notes that they issued.
The last private bank in England to issue its own notes was Thomas Fox's Fox, Fowler and Company bank in Wellington, which rapidly expanded until it merged with Lloyds Bank in 1927. They were legal tender until 1964. There are nine notes left in circulation; one is housed at Tone Dale House, Wellington. (Scottish and Northern Irish private banks continue to issue notes regulated by the bank.)
The bank pursued the multiple goals of Keynesian economics after 1945, especially "easy money" and low-interest rates to support aggregate demand. It tried to keep a fixed exchange rate and attempted to deal with inflation and sterling weakness by credit and exchange controls.
The reserve requirement for banks to hold a minimum fixed proportion of their deposits as reserves at the Bank of England was abolished in 1981: see Reserve requirement United Kingdom for more details. The contemporary transition from Keynesian economics to Chicago economics was analysed by Nicholas Kaldor in The Scourge of Monetarism.
The handing over of monetary policy to the bank became a key plank of the Liberal Democrats' economic policy for the 1992 general election. Conservative MP Nicholas Budgen had also proposed this as a private member's bill in 1996, but the bill failed as it had the support of neither the government nor the opposition.
The UK government left the expensive-to-maintain European Exchange Rate Mechanism in September 1992, in an action that cost HM Treasury over 3 billion. This led to closer communication between the government and the bank.
In 1993, the bank produced its first Inflation Report for the government, detailing inflationary trends and pressures. This annually produced report remains one of the bank's major publications. The success of inflation targeting in the United Kingdom has been attributed to the bank's focus on transparency. The Bank of England has been a leader in producing innovative ways of communicating information to the public, especially through its Inflation Report, which many other central banks have emulated.
In 1996, the bank produced its first Financial Stability Review. This annual publication became known as the Financial Stability Report in 2006. Also that year, the bank set up its real-time gross settlement (RTGS) system to improve risk-free settlement between UK banks.
On 6 May 1997, following the 1997 general election that brought a Labour government to power for the first time since 1979, it was announced by the Chancellor of the Exchequer, Gordon Brown, that the bank would be granted operational independence over monetary policy. Under the terms of the Bank of England Act 1998 (which came into force on 1 June 1998) the bank's Monetary Policy Committee (MPC) was given sole responsibility for setting interest rates to meet the Government's Retail Prices Index (RPI) inflation target of 2.5%. The target has changed to 2% since the Consumer Price Index (CPI) replaced the Retail Prices Index as the Treasury's inflation index. If inflation overshoots or undershoots the target by more than 1% the Governor has to write a letter to the Chancellor of the Exchequer explaining why, and how he will remedy the situation.
Independent central banks that adopt an inflation target are known as Friedmanite central banks. This change in Labour's politics was described by Skidelsky in The Return of the Master as a mistake and as an adoption of the rational expectations hypothesis as promulgated by Alan Walters. Inflation targets combined with central bank independence have been characterised as a "starve the beast" strategy creating a lack of money in the public sector.
In 2009, a request made to HM Treasury under the Freedom of Information Act sought details about the 3% Bank of England stock owned by unnamed shareholders whose identity the bank is not at liberty to disclose. In a letter of reply dated 15 October 2009, HM Treasury explained that "Some of the 3% Treasury stock which was used to compensate former owners of Bank stock has not been redeemed. However, interest is paid out twice a year and it is not the case that this has been accumulating and compounding."
The Financial Services Act 2012 gave the bank additional functions and bodies, including an independent Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA), and more powers to supervise financial market infrastructure providers.
Canadian Mark Carney assumed the post of Governor of the Bank of England on 1 July 2013. He served an initial five-year term rather than the typical eight. He became the first Governor not to be a United Kingdom citizen but has since been granted citizenship. At Government request, his term was extended to 2019, then again to 2020. As of January 2014[update], the bank also had four Deputy Governors. 041b061a72