The Bank of England is the central bank of the United Kingdom. Sometimes known as the “Old Lady” of Threadneedle Street, the Bank was founded in 1694, nationalised on 1 March 1946, and in 1997 gained operational independence to set monetary policy.
The financial crisis demonstrated the need for a new approach to financial regulation and major changes to the Bank came into force in April 2013. The Financial Services Act 2012 established an independent Financial Policy Committee (FPC), a new prudential regulator as a subsidiary of the Bank, and created new responsibilities for the supervision of financial market infrastructure providers.
The Financial Policy Committee (FPC) is charged with taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The Committee has a secondary objective to support the economic policy of the Government.
The new Prudential Regulation Authority (PRA) is responsible for the supervision of banks, building societies and credit unions, insurers and major investment firms. In total the PRA will regulate around 1,700 financial firms. The PRA’s role is defined in terms of 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.
In promoting safety and soundness, the PRA focuses primarily on the harm that firms can cause to the stability of the UK financial system. A stable financial system is one in which firms continue to provide critical financial services to the economy – a precondition for a healthy and successful economy.
Standing at the centre of the UK financial system, the Bank is committed to promoting and maintaining monetary and financial stability as its contribution to a healthy economy.
The Bank's roles and functions have evolved and changed over its three-hundred year history. Since its foundation, it has been the Government's banker and, since the late 18th century, it has been banker to the banking system more generally – the bankers' bank. As well as providing banking services to its customers, the Bank of England manages the UK's foreign exchange and gold reserves.
The Bank has two core purposes – monetary stability and financial stability. The Bank is perhaps most visible to the general public through its banknotes and, more recently, its interest rate decisions. The Bank has had a monopoly on the issue of banknotes in England and Wales since the early 20th century. But it is only since 1997 that the Bank has had statutory responsibility for setting official interest rates in the UK.
Interest rate decisions are taken by the Bank's Monetary Policy Committee and the inflation target is confirmed each year by the Chancellor of the Exchequer. The Bank implements its interest rate decisions through its financial market operations. It has close links with financial markets and institutions. This contact informs a great deal of its work, including its financial stability role and the collection and publication of monetary and banking statistics.
The Bank of England is committed to increasing awareness and understanding of its activities and responsibilities, across both general and specialist audiences alike. It produces a large number of regular and ad hoc publications on key aspects of its work and offers a range of educational materials. The Bank provides technical assistance and advice to other central banks through its Centre for Central Banking Studies, and has a museum at its premises in Threadneedle Street, open to members of the public free of charge.