News Release
Bank of England Statement
28 October 1997
The publication today of the Government's Bank of England Bill marks a momentous new step in the history of the Bank.
The Bill envisages major reforms affecting the Bank's governance, its responsibilities, and its public accountability for the way in which it discharges its responsibilities and conducts its internal affairs, including its financial affairs.
On governance, the Bill will establish a restructured Court, which will include the Governor and two Deputy Governors, as well as 16 Directors, all of whom will be non-executive. It confirms the role of Court in setting the Bank's objectives and strategy, and in ensuring the effective use of the Bank resources. And it confers explicit review functions on the Directors, who will have their own appointed Chairman, and who will make, as part of the Bank's Annual Report , their own annual statement to Parliament on the matters for which they are responsible.
In relation to its responsibilities, the Bill provides the statutory framework for the Bank's operational independence in the conduct of monetary policy, formally constituting the Monetary Policy Committee charged with achieving the price stability objective set by the Chancellor, and establishing a framework of transparency and accountability for its decision-making which is at least as open as any arrangements in the world. These arrangements place price stability at the heart of economic policy as a necessary condition for the sustainable growth of output and employment.
The Bill also transfers to the new Financial Services Authority , launched today, the Bank's present responsibility for banking supervision: the Bank will remain responsible for the overall stability of the financial system as a whole. There are powerful reasons for consolidating the supervision of financial institutions in a single agency, given the increasingly blurred boundaries between different types of financial businesses. But it is crucial to ensure that the respective roles of the Bank and the FSA are clearly understood, and that effective arrangements remain in place for handling disturbances. The Memorandum of Understanding, which is also published today, provides a practical framework for co- operation between the Bank and the FSA, and for co-ordination between the Bank, FSA and the Treasury in the event of a financial crisis. It sets out our respective responsibilities, and ensures that we are each accountable for the way in which they are exercised.
The Bank will also be accountable for its other activities, and for its finances. The Bill puts on a statutory footing the Cash Ratio Deposit system, which provides the Bank with resources and income, requires us to publish annual accounts on a Companies Act basis, and gives the Treasury a power to require us to publish additional information on our finances. As a public institution performing vital functions both in the economy at large and in the banking and financial system, the Bank fully accepts that it must be accountable for what it does and the resources it uses.
The Governor today said: "I very much welcome the publication of the Bill and of the MOU. They provide a really solid foundation for both monetary and financial stability in the long-term interest of the British economy."
