Core Purposes - Financial Stability

The Bank of England has played a key role in maintaining the stability of the United Kingdom's financial system for 300 years and it is now a core function of most central banks. A sound and stable financial system is important in its own right and vital to the efficient conduct of monetary policy.

Since 1997, the Bank of England has had responsibility for the stability of the financial system as a whole, while the Financial Services Authority (FSA) supervises individual banks and other financial organisations including recognised financial exchanges such as the London Stock Exchange.

Memorandum of Understanding

In October 1997, a Memorandum of Understanding between the Bank, Her Majesty's Treasury and the FSA was agreed. This formalised the allocation of responsibilities for regulation and financial stability in the UK. It made provisions for the establishment of a high level Standing Committee to provide a forum in which the three organisations could develop a common position on any problems which may emerge. An updated Memorandum was issued in March 2006 (see Key Resouces below).

The Bank's contribution to the Standing Committee on financial stability issues is informed by the operations of the Bank's Financial Stability Executive Board - a high-level internal body providing guidance on priorities and the direction of work in the Financial Stability area. The Board is chaired by the Bank's Deputy Governor for Financial Stability and generally meets on a monthly basis.

Substantial work is underway in the light of the recent financial market turmoil to help rebuild confidence in financial institutions, and to reduce the likelihood and impact of a recurrence. Follow this link to the Banking Reform Bill, and this link for details of other announced initiatives, including the Special Liquidity Scheme.

Key Resources

Memorandum of Understanding
between HM Treasury, the Bank of England and the Financial Services Authority
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