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Home > Markets > The Bank of England Balance Sheet
 

The Bank of England Balance Sheet

The Bank of England uses its balance sheet for policy purposes. The expansion of its balance sheet since 2007, and more especially since 2008, reflects the extraordinary policy measures that it has adopted.

Uses of the balance sheet
Banknotes
Sterling Monetary Framework
Foreign exchange reserves
Other operations: US dollar lending
Other operations: Quantitative Easing
Other uses of the balance sheet

 

Publication of the balance sheet

Click the charts to enlarge

 

Bank of England consolidated
balance sheet: liabilities
Bank of England consolidated
balance sheet: assets

Bank of England  consolidated balance sheet: liabilities


Bank of England consolidated balance sheet: assets

 Banknotes
Among the Bank's liabilities are the banknotes used in everyday transactions. They are supplied on demand. Demand fluctuates around holiday periods but the trend is one of steady growth. See Banknotes pages for more information.

 

Under legislation dating from 1844, banknotes and the assets backing them are held by a separate department of the Bank - the Issue Department. The Bank's other assets and liabilities are held in its Banking Department. The existence of these two Departments does not affect the impact that the Bank's transactions have on financial markets or the wider economy. For that reason the charts above show the consolidated balance sheet of the two Departments. But the allocation of assets and liabilities between the two Departments does affect the distribution of risk and the Bank's finances. HM government receives the net profit from Issue Department and makes good losses. To cover risk on its other activities, the Bank holds capital in Banking Department.

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Sterling Monetary Framework
The Bank uses its sterling market operations to implement monetary policy, as decided by the Monetary Policy Committee, and to provide liquidity insurance to the banking system. Among the Bank's liabilities are reserves balances - current account balances held by commercial banks at the Bank. Like banknotes, these balances constitute "central bank money". The Bank pays Bank Rate on reserves balances - a key part of the implementation of monetary policy. Reserves balances can be used by commercial banks to make payments and constitute a high quality liquid asset for them to hold. From May 2006 commercial banks have chosen their own targets for the reserves balances that they will maintain and in 2007 and 2008 they increased those targets. The further sharp increase in reserves balances since March 2009 reflects the fact that asset purchases under the MPC's policy of Quantitative Easing have been financed by increasing reserves balances. In this period banks have not been asked to set individual targets.;

Any sterling transaction by the Bank will affect the quantity of reserves balances. To steer the quantity towards the required target, the Bank uses its open market operations. In these operations the Bank may lend money to its counterparties (secured against collateral) at maturities of between one day and twelve months. It may also provide money for a longer period by buying sterling securities outright. (Securities bought for this purpose are among those "acquired via market transactions" in the assets chart above). If the Bank needs to reduce the quantity of reserves it borrows money from its counterparties at maturities of one to seven days.

Since 2007 the Bank has also used its 3-month lending operations to provide additional liquidity insurance to the banking system, by allowing banks to borrow against a wider-than-normal set of collateral including assets for which private financing markets had dried up. From June 2010, specific 3-month lending wider operations were replaced by indexed long-term repo operations. Indexed long-term repo (ILTR) operations make funds available against both Level A and Level B collateral sets during each monthly operation. From February 2014, ILTR operations will be changed to provide funds at 6-month maturity against Level A, Level B and Level C collateral. The impact of both pre and post June 2010 extended operations can be seen in the "longer-term open market operations" shown in the assets chart above. Take-up of the extended long-term operations was such that, consistent with meeting the reserves target, short-term lending operations (up to one week) could for a time be reduced to zero and short-term borrowing operations were introduced with the issue of one-week Bank of England bills. These are the "short-term open market operations" shown in the liabilities chart above. See Sterling Monetary Framework pages for more information.

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Foreign exchange reserves
As part of the monetary policy framework introduced by the Chancellor of the Exchequer in 1997, the Bank of England holds its own foreign exchange reserves in support of its monetary policy objective. These reserves are separate from the Government's foreign exchange reserves, which the Bank manages as HM Treasury's agent. The assets held in the Bank’s reserves are included in “bonds and other securities acquired via market transactions” in the assets chart above. They are financed with medium-term foreign currency securities issued by the Bank (shown in the liabilities chart). See Foreign Exchange Reserves pages for more information.

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Other operations: US dollar lending
Between September 2008 and February 2010 the Bank of England lent US dollars to counterparties in the United Kingdom. This action was taken in concert with other central banks and the measures as a whole were designed to improve liquidity conditions in global financial markets. The Bank of England’s dollar lending was at maturities ranging from one day to three months and was included in “other assets” in the chart above. The total outstanding amount peaked in October 2008. Lending was matched exactly by US dollar deposits from the Federal Reserve Bank of New York (included in “other liabilities”). This facility closed on 1 February 2010. In May 2010, in response to the re-emergence of strains in US dollar short-term funding markets, the Bank of England resumed dollar lending operations. See US Dollar Repo Operations page for more information.

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Other operations: Quantitative Easing
In January 2009, under a remit from the Chancellor of the Exchequer, the Bank established a subsidiary company, the Bank of England Asset Purchase Facility Fund (BEAPPF), with the initial objective of improving the liquidity of the corporate credit market by making purchases of high-quality private sector assets. In March 2009 the remit was extended to allow the MPC to use the Asset Purchase Facility to make purchases of assets (now including gilt-edged securities) in pursuit of its monetary policy aims.

The accounts of the Fund are not consolidated with those of the Bank. But the Fund is financed by loans from the Bank and those loans are included in “other assets” in the chart above. They account for the bulk of the increase in “other assets” since March 2009. The Bank’s loans to the Fund were in the initial phase financed with a deposit by the government’s Debt Management Office with the Bank. Since March 2009, as already noted, the Bank’s loans have been financed by increased reserves liabilities on the Bank’s balance sheet. See the Asset Purchase Facility Balance Sheet Impact pages for more information. The transactions of the Fund itself are reported separately. See Asset Purchase Facility Quarterly Report page for the latest report. The greatest part of the Fund’s purchases has been of gilts.

The Special Liquidity Scheme was introduced in April 2008 to improve the liquidity position of the banking system by allowing banks and building societies to swap their high quality mortgage-backed and other securities for UK Treasury Bills for up to three years. As these trades are stock lending transactions they are off balance sheet. The drawdown period for the scheme closed on 30 January 2009. For more information see the Special Liquidity Scheme pages.

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Other uses of the balance sheet
The Bank routinely provides banking services in sterling and foreign currencies to HM government and to overseas central banks. Accounts provided as part of these services are included in "other liabilities" above. The Bank has also made loans to the Financial Services Compensation Scheme and to HM government to allow prompt payment to depositors benefiting from the Scheme's protection.

The Bank's policy functions are financed by non-interest-bearing Cash Ratio Deposits placed with the Bank by UK-resident commercial banks. The bulk of these deposits, and of the Bank's capital (insofar as it is not invested in fixed assets), are invested in a portfolio of sterling bonds.

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Publication of the balance sheet
The Bank publishes weekly balance sheets, as at close of business on Wednesdays (the Bank Return) and an annual balance sheet in its Annual Report. Balance sheets are provided for Issue and Banking Departments separately. A weekly consolidated balance sheet is also provided, on which the charts above are based. But note that until 10 December 2008 the Bank's US dollar operations were treated in the Bank Return on a trade date basis, but have since been treated on a settlement date basis. The charts above include US dollar transactions on a settlement date basis throughout. As a result, for the period from 15 October to 10 December the balance sheet total in the charts is smaller than in the Bank Return.

Items from the weekly Bank Return are also available as time series in the Bank's statistical publication Bankstats (Monetary and Financial Statistics) and in its Interactive Database.

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