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 with a founding charter that stated its purpose was to “promote the public good and benefit of our people”.
The Bank of England’s purpose today reflects that vision first articulated by our founders. Our mission: to promote the good of the people of the United Kingdom by maintaining monetary and financial stability.
Originally established as a privately-owned institution, the Bank of England was nationalised after the Second World War, but retained its broad – but largely informal – public service mission.
This changed in 1997, when Parliament voted to give the Bank operational independence with a clear remit to pursue price stability, which had been the most significant challenge facing macroeconomic policymaking for the previous two decades.
However, the financial crisis demonstrated the need for a new approach to financial regulation in the UK. This has resulted in a major expansion in the Bank’s responsibilities, which came into force in April 2013.
In some respects, this represents a return to the broader role that the Bank exercised in the past. However, while the Bank’s commitment to serving the public good would be recognisable to its seventeenth century founders, its responsibilities are now clearly defined by Parliament.
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 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 regulates 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.