The Court of directors of the Bank of England

Introduction

Court is the Bank’s board of directors. ‘Court’ originated as a word used to describe a formal assembly. The Bank was created by a Royal Charter in 1694 (‘to promote the public Good and Benefit of our People’), and the few public companies formed at the time of the Bank’s foundation tended to be governed by Courts of directors. When the Bank had private shareholders − as it did until 1946 − they would meet as the ‘Court of Proprietors’.

While keeping its name, Court has evolved over time, most significantly during the past 30 years. Nonetheless, its governance arrangements have been reformed by successive Acts of Parliament and by conscious application of corporate best practice. Today’s Court has most of the characteristics of a company Board, though with the obvious qualification that its present success is not measured by profits, dividends or balance sheet size, but by the delivery of the Bank’s objectives.

1: The history of Court

Early days

On the foundation of the Bank in 1694, Court consisted of 26 members: 24 directors, a Governor and a Deputy Governor. The diarist John Evelyn asserted that the new corporation had been put ‘under the Government of the most able and wealthy citizens of London’.^{footnote [2]} In addition, there was a ‘Court of Proprietors’ which represented the interests of the nearly 1,300 private shareholders − which, aside from King William III and Queen Mary II, also included notable luminaries from the time such as the English political philosopher John Locke. The Proprietors met twice a year to appoint the Governors and the directors, and to agree the dividend.

The term ‘Court’ would have been familiar to contemporaries in the City of London. For centuries it had been used to describe the governing body of livery companies,^{footnote [3]} merchant banks and ancient universities. It was also the common structure for companies established by Royal Charter, for example, the East India Company (1600) and Hudson Bay Company (1670) both had Courts of directors.

As is clear from the Court records of the period, the Bank’s earliest years were an active, and to a degree, perilous period of the Bank’s existence. The Bank was expected to be temporary, not permanent, and its Charter was subject to continual renewal and the political vicissitudes of the time (with the Bank generally finding support among the Whigs and regarded with scepticism by the Tories). To keep its Charter and privileges, and its role as the Government’s banker and debt manager, the Bank had to meet the Government’s extensive credit needs while at the same time establishing and maintaining the highest credit rating for itself.^{footnote [4]}

By the 19th century, the Bank and its Court had established a more settled pattern. The Bank’s continuance was assured by Peel’s 1844 Bank Charter Act. This Act also defined more precisely the gold standard as the monetary system in operation in the UK. From its earliest days, Court determined the Bank Rate − historically known as the official rate of discount. For much of the Bank’s history, however, discretion over setting the rate was limited by the gold standard, which required maintaining exchange parity. In 1844, Court agreed that it should fix the rate weekly, though with power for the Governor to be able change it immediately if that was required. This rate decision was communicated to the outside world via a large board displayed in the front hall of the Bank. City messengers then ran out of the Bank with this information.

The 1844 Act also gave the Bank a monopoly of note issue in England and Wales, but the profit was to be accounted for separately from the rest of the Bank.^{footnote [5]} This was achieved through the creation of separate Banking and Issue Departments, a division which is still maintained today. Up until 1928, the profits of Issue were split between the Bank and HM Treasury, but following the 1928 Currency and Bank Notes Act, everything from issue was passed to HM Treasury.^{footnote [6]}

Over time, the private proprietors became less significant, and the Bank was conducting itself in most respects as a public policy institution. The need to do so was catalysed by a major scandal in 1893, in which unauthorised advances were made by the Chief Cashier’s Office which ultimately resulted in financial losses for investors (including the Prime Minister Lord Rosebery) and precipitated the resignation of the Bank’s Chief Cashier, Frank May.^{footnote [7]} The affair resulted in public criticism of the Bank’s governance arrangements in a number of newspapers, and led to the establishment of the Bank’s audit committee, chaired by the Deputy Governor, to strengthen internal controls and oversight of the Court of directors over the Bank’s officers.^{footnote [8]} Notwithstanding this, the Governor was dominant in the life of the organisation; a Bank memorandum of 1894 described the Governor as ‘supreme over every department and over the whole machinery by which the business of the Bank was carried on’. He would however be expected to consult the Committee of Treasury − a Committee of the Court’s senior members − where time allowed; and to ‘bring before the Court all such matters as, in his view, they should be acquainted with’.^{footnote [9]}

The 1694 Act stipulated that in order to be a director there was a financial requirement to own £2,000 of Bank Stock (ie shares). Deputy Governors had to hold £3,000 and Governors £4,000. Several directors were disqualified from serving on Court as a result of being caught up in the various financial crises of the 19th century and having to dispose of their stock; indeed, four directors had to leave Court during the crisis of 1847, even including the Governor, William Robinson, who had been made personally bankrupt (after his family business collapsed following over-speculation in the corn trade).^{footnote [10]}

As Walter Bagehot described in ‘Lombard Street’ (Box B), Court provided a talent pool for future Governors and an experience pool of previous incumbents. Directors, after a suitable apprenticeship, served two-year terms as Deputy Governor and then Governor, and subsequently remained on Court, which thus became a repository of immense (if perhaps narrow) experience. For example, Thomson Hankey, a Governor between 1852−53, was still a director forty years later.^{footnote [11]}

Reforms in the early 20th century

The pattern described by Bagehot was broken in the early 20th century, when Lord Cunliffe, because of the First World War, served for seven years followed shortly afterwards by Montagu Norman, the Bank’s longest-serving Governor at 24 years, from 1920 until 1944.^{footnote [13]} Cunliffe is remembered now mainly for his high-handed approach to HM Treasury (including opting not to consult or even ignore HM Treasury on key issues),^{footnote [14]} but he evidently upset Court as well. A committee chaired by Lord Revelstoke proposed a number of reforms that were implemented after Cunliffe’s departure.^{footnote [15]} The changes included appointment of a ‘Comptroller’ − what we might now call a Chief Operating Officer − and, in relation to Court, a retirement age and a requirement on the Governor to consult the Committee of Treasury on all matters of importance.

Under Norman there were further changes. He had always been convinced of the need for a group of full-time professionals on Court. Deputy Governors appointed from 1929 onwards were full-time and permanent, serving in role for more than the conventional two-year term. Placing Deputy Governors on a more permanent footing was something Bagehot had previously advocated, highlighting the importance of having someone who could say ‘no’ to the Governor (in Bagehot’s inimitable style they: ‘must not have to say ‘Sir’ to the Governor. There is no fair argument between an inferior who has to exhibit respect and a superior who has to receive respect’).^{footnote [16]} With this practice embedded, the role of the ‘Comptroller’ ceased.^{footnote [17]} More radically, following the Peacock Report of 1932,^{footnote [18]} Court introduced full-time paid executive directors, of whom seven were appointed between 1932 and 1938.^{footnote [19]} Among the non-executive directors, Norman introduced more industrialists to balance the City merchants, and on the staff, a number of professional advisers.

Nationalisation in 1946

Norman’s governorship ultimately sowed the seeds for nationalisation. The gold standard, restored in 1925 − now widely-considered an error of judgement − was finally abandoned in 1931, and HM Treasury transferred the gold and foreign exchange reserves into its newly created Exchange Equalisation Account, for which the Bank was agent. During this period, it became increasingly the convention to seek the Chancellor’s acquiescence in a Bank Rate change. The Governor retained great influence in the City and internationally, but the ultimate say on monetary policy was now held elsewhere, and active use of monetary policy became rare. Bank Rate, save for one short break in August 1939, stood at 2% from 1932−51. ‘I am an Instrument of the Treasury’ remarked Norman to a gathering of central bankers in 1937.^{footnote [20]}

The likelihood of the Bank being nationalised was also having an impact on the appointment of directors. In discussions with the Chancellor in 1941 on new appointments, Norman said ‘this might be the last occasion on which the Bank had freedom of action.’ He pointed out the supposed ‘danger of nominating a 100% Labour candidate at this time’. In fact, it was agreed to appoint the economist John Maynard Keynes. Norman reckoned that this would be an indicator of the Bank broadening representation on Court and would ‘certainly be welcomed by America and also by most people in this country with the exception of Labour’.^{footnote [21]} Keynes himself appreciated Norman’s charm but was critical of what he regarded as his flawed monetary judgments, particularly over the gold standard, quipping he was ‘always absolutely delightful… and always absolutely wrong’.^{footnote [22]}

When the Bank was nationalised in 1946, the Government simply acquired the privately held stock (by this time there were over 17,000 shareholders) and took a statutory power to appoint Court of the Bank − including Governors − and, for good measure, a general power of direction over the Bank.^{footnote [23]} There was no attempt to define the Bank’s objectives or functions, as had been common in other countries’ central bank statutes.^{footnote [24]} Whatever the Bank might be, it was enough at the time for the Government to have control of its policy. Forrest Capie, reviewing the Bank in the 1950s, concluded that nationalisation had changed very little and ‘despite the formalised subordination to the Treasury, it retained a great deal of autonomy’.^{footnote [25]}

The post-1946 Court

Under the 1946 Bank of England Act and Charter Amendment, Court was reduced from 26 to 18 members: a Governor, a Deputy Governor, and 16 directors, up to four of whom could be executive. Initially the pattern of appointments remained much as in Norman’s time: merchant bankers and industrialists, but after nationalisation a trade unionist too. Increasingly however, the executive directors were appointed from the Bank’s staff rather than from outside. Directors were appointed for four-year terms, and the Governors for five. Directors served normally two terms − though typically there were one or two who served longer, and these continued to populate the Committee of Treasury.

The 1946 Act and all subsequent legislation described Court as ‘managing the affairs of the Bank’. This could mean many things. Indeed, the report of the Radcliffe Committee on the working of the monetary system found ‘this distinction has had no practical force’.^{footnote [27]} The short explanation however, was that the Governor was ultimately responsible for policy − for instance, considering where interest rates might be set − and Court was responsible, at the highest level, for ensuring that the Bank was well run as an organisation. Court was not involved in individual policy decisions, nor in the advice tendered to the Chancellor.^{footnote [28]}

While not formally involved in monetary policy matter decisions, in 1957 there was something of a scandal following accusations that an increase in Bank Rate had been leaked and used for private gain. The resulting public inquiry − the 1958 Bank Rate Tribunal, led by Lord Justice Parker − examined over 130 witnesses and concluded that no improper disclosure had occurred. Nonetheless, it did put the spotlight on the Bank and the non-executive directors and prompted reforms to how rate decisions were communicated and handled within the Bank.^{footnote [29]} In particular, from 1959 non-executive directors were no longer given advance notice of policy changes, and the Governor was authorised to settle changes with the Chancellor reporting to Court on the same day of any change.^{footnote [30]}

After the scrutiny of non-executive directors following the Bank Rate Tribunal, their backgrounds and roles remained of interest. For the Bank, as outlined in a 1966 Quarterly Bulletin article, ‘The other 12 directors have a wide variety of interests in industry and commerce trade union affairs, and in banking, both at home and overseas. In addition to their attendance at Court and their work on the standing committees, they may be called upon by the Governors for advice on any problem in which their special qualifications or experience would be helpful’.^{footnote [31]} Later, there was further questioning about Court and its directors when the Select Committee on Nationalised Industries investigated the Bank. In its report, published in 1970, the Committee doubted that Court needed to be constituted, and considered there to be little need for so many part-time directors.^{footnote [32]} Nevertheless, the report did not result in any changes.

While oversight of the City had historically relied on the ‘Governor’s eyebrows’, essentially the process by which the Governor let it be known he was not content with a given development at a firm, as the 20th century progressed the Bank assumed formal, statutory responsibilities for the supervision of banks (under the Banking Acts of 1979 and 1987) and of wholesale intermediaries (in a carve-out from the Financial Services Act of 1986). Court was not a viable body to exercise such responsibilities, not least because a number of non-executives came from regulated firms presenting insurmountable conflicts of interest, and they were therefore delegated to a series of committees under the Governor. From 1987 a separate statutory board − the Board of Banking Supervision (BBS) − took on the role of exercising Banking Act powers (even if it did not take day-to-day supervisory decisions itself), and Court developed a practice of holding discussions with the BBS.

Entering the 1990s, there were contrasting views on how effectively Court operated in the period prior to monetary independence in 1997/8. Sir David Lees (a non-executive director from 1991 to 1999, later Chair of Court 2009−14) recalled Court being a rather informal affair where ‘we gave our opinion on various industrial issues for about an hour or two and went and had a good lunch’.^{footnote [33]} Those opinions were nonetheless deemed to be of value. Sir Paul Tucker (Private Secretary to Governor Robin Leigh-Pemberton) emphasised that ‘Governors took the discussions seriously and often found them useful. It is hard to exaggerate the weightiness of many Court members during that period [who were] able to play an important role in standing ready to protect the Bank from undue political pressure, ensuring that the Bank, although not independent in today’s terms, was not simply a regular Government agency’.^{footnote [34]}

One underappreciated contribution of Court during this period was its role in the ‘prehistory’ of UK corporate governance. While modern UK corporate governance is widely traced back to the Cadbury Report of 1992 (which in turn formed the basis of today’s UK Corporate Governance Code), recent scholarship has highlighted that a number of the norms of Cadbury’s report – including institutionalising the role of non-executive directors in UK public companies – had been deliberated and disseminated by the Bank for a number of decades previously, albeit on an informal basis.^{footnote [35]} Sir Adrian Cadbury himself served on Court as one of the weightiest Court members of the period, serving a remarkable 24 years from 1970–94. At that time long tenures for directorships were common; the move to shorter fixed terms for non-executive directors was part of a broader shift towards best practice in governance to promote board renewal and influence, influenced by the very reforms Cadbury helped to shape.

In line with UK corporate governance more generally, there was a building sense that Court’s role needed to be placed on a more formal footing. From the 1990s, Court set out in a formal document the extent to which it delegated authority to the executive and those powers which it retained to itself. The latter included strategy, budgets, approval of the Bank’s accounts, the formation and terms of reference of Bank committees, remuneration policies and the pay of the most senior members of the Bank. The Governance of the Bank of England including Matters Reserved to Court document continues to operate to this day and gives a degree of flexibility as what matters to delegate and what matters it reserves to itself; it is, reviewed and approved on an annual basis, and published on the Bank’s website (Section 3).

Box D: The Court Room

The Court Room was designed by Sir Robert Taylor in the 18th century and was rebuilt by Herbet Baker during the interwar period, who kept most of its original features. A notable interior of its time, it was originally intended to accommodate the weekly meetings of Court but now is used for other meetings and official functions. At each end of the room Taylor placed a triple arcade resting on paired Corinthian columns. Above the central arch of the western arcade is a wind dial (1805) used in the days of sail to forecast the arrival of shipping and its impact on commodity prices, interest rates etc – an early market information system. The room also held a mahogany ballot box designed by Sir John Soane, the Bank’s architect from 1788−1833, for use by Court. In the form of a miniature ancient Greek temple, it allowed a voter to cast their ballot in secret by reaching inside and dropping a small wooden ball to the left side for ‘yes’, or right for ‘no’. The two drawers, lined with baize to muffle the noise, could be removed to count the number of votes either way.

2: Reforming Court: 1998 onwards

The past three decades have seen significant change in the Bank, beginning in May 1997 when the long public debate about central bank independence concluded with the announcement that the Bank would have operational responsibility for setting monetary policy, within a target set by Government. At the same time, the Bank’s supervisory responsibilities passed to the Financial Services Authority (FSA) and the Bank also ceased to be the Government’s debt manager. These changes, given effect by the Bank of England Act 1998 (the 1998 Act), were a watershed moment for the institution. As Harold James describes in his official history, it was now a modern central bank.^{footnote [36]}

Two of the most notable developments have been, the centrality of statutory objectives set by Parliament in determining the Bank’s mission and the creation of statutory policy committees to deliver them. The 2007−08 financial crisis brought major legislative reforms for the Bank. The 2009 Banking Act for the first time gave the Bank a statutory objective to protect and enhance UK financial stability and gave the Bank formal powers to resolve failing firms. The 2012 Financial Services Act gave the Bank new macro- and micro-prudential powers creating both the Financial Policy Committee (FPC) overseeing the stability of the UK financial system, and the Prudential Regulatory Authority (PRA), overseeing prudential regulation of deposit-takers, major investment firms and insurers.

Monetary independence and statutory objectives

For most of the Bank’s long history, the institution was entirely comfortable in not having its objectives prescribed in statute. Even into the 1990s the view was that this provided the Bank with a degree of autonomy which might be lost if its role was strictly defined. Sir George Blunden, a former Deputy Governor, remarked (perhaps tongue-in-cheek) that the Bank was in fact ‘the most independent because all other central banks are constrained by articles and acts that have established for them what they may do and what they may not do’.^{footnote [37]} Instead of having its objectives prescribed by law, from 1990 the Bank set its own ‘Core Purposes’, aimed at defining its underlying objectives as a central bank. Bank independence over monetary policy in 1997 resulted in the Bank being granted a formal statutory objective from Parliament for the first time.^{footnote [38]} On 14 May 1997, the Court minutes recorded how Governor Eddie George updated Court on the reforms and its implications for the Bank’s objectives:

Turning to the Bank’s objectives in the legislation, he said that the current Act and Charter said nothing about the objectives of the Bank of England. The Bank had always found the situation quite comfortable, though for management purposes it had defined its core responsibilities internally. […] A concern was that the Bank should be careful that it did not define its objectives so tightly that it could not do things that it had not previously thought of. That inclined the Bank to a minimum specification of objectives, except in the sense set out in the Chancellor’s letter […] The Governor said the Bank made clear in its discussion that it wanted maximum flexibility.^{footnote [39]}

The eventual 1998 Act saw the Bank being granted the statutory objective to maintain price stability and, subject to that, to support the Government’s economic policy.

Creation of statutory committees

The public debate on the possibility of transferring responsibility for monetary policy decisions back to the Bank occupied much of the 1990s. The implications for governance were explored by the 1993 Treasury Committee Report on the Bank, which suggested that while the power to set interest rates could not be left entirely with the Governor, nor could it be left to Court in its existing form on account that it was too large and diverse in its composition and lacked the requisite expertise in monetary economics. Instead, the Treasury Committee recommended that a separate body be established within the Bank, composed of individuals with the relevant monetary expertise.^{footnote [40]}

This recommendation laid the groundwork for the creation of the Monetary Policy Committee (MPC), formalised in the 1998 Act, consisting of five executive and ‘external’ members, who are part-time, the latter appointed for terms of three years on the basis of their knowledge and experience.^{footnote [41]} This model of a statutory policy committee, made of internal and external members, charged with delivering the Bank’s policy objectives became the model for subsequent reforms and there are now four such committees within the Bank (Box E).

Legislative reforms to Court: 1998 to present

The 1998 Act heralded major changes to Court and was the first of several legislative changes over the past 30 years that significantly reformed Court, cumulatively bringing Court more into line with modern corporate governance, while recognising the unique role played by the Bank as the UK’s central bank.

The 1998 Act

Other than the Governors, all 16 directors reverted to the historic pattern of being non-executive, appointed for terms of only three years (five years for the Governors). The Bank’s executive directors reverted to being solely Bank employees. Court’s role was specified as being to manage the Bank’s affairs, ‘other than the formulation of monetary policy’. Its specific statutory functions were to include determining the Bank’s objectives and strategy, ensuring the effective discharge of the Bank’s functions, and ensuring the most efficient use of the Bank’s resources.

While the formulation of monetary policy was expressly outside of its remit, Court was (and is) required to keep under review the processes adopted by the MPC, and in particular to ensure that it took proper account of regional, sectoral and other information. The MPC was given a corresponding legal obligation to report on its activities to Court on a regular basis to support Court in discharging this duty.^{footnote [42]} The intention of then Chancellor Gordon Brown was that Court be ‘substantially reformed, so that it was able to take account of the full range of industrial and business views in this country’ in reviewing the performance of the MPC;^{footnote [43]} he observed that ‘when the Bank of England was nationalised in the 1940s, no real change was made in the organisation of the Court. It is time to ensure that it represents business and sectoral interests throughout the United Kingdom […]. When I studied the composition of the Court of the Bank of England, I found that what Courts had in common was that they always included the chairman of a football club in the English league. I want industry to be properly represented, and I want every region, including Scotland and Wales, to be represented on the Court of the Bank of England’.^{footnote [44]}

Non-executive directors were formed into a sub-committee of Court (christened ‘NedCo') with a chair nominated by the Chancellor. The role of NedCo was to review the Bank’s performance and financial management (including internal financial controls) and to determine remuneration of executive members of Court. The 1998 Act also reformed some of the eligibility criteria, including the legal disqualification that prevented ‘aliens’ (meaning non-British nationals) serving on Court and rather than being disqualified if members were ‘found to be a lunatic’, members must now be ‘unable or unfit’ to discharge their duties.^{footnote [45]}

Notwithstanding the fact that bank supervision was stripped from the Bank and transferred to the FSA, the 1998 Act also gave the Bank a second Deputy Governor, for Financial Stability. However, it gave the Bank no statutory powers – or objectives – in the field of financial stability. There was recognition at the time that it was slightly odd, and somewhat unbalanced, for the Act to exclusively focus on monetary stability, and be entirely silent on the Bank’s financial stability role, but at the time of Bank independence in 1998, HM Treasury’s position, while recognising ‘the role that the Bank has long played at the heart of the financial system’, considered an equivalent financial stability objective to be unnecessary and felt it would potentially constrain the Bank’s ability to adapt to changing circumstances (echoing some of the debates at the Court meeting quoted earlier).^{footnote [46]} Instead, a non-statutory Memorandum of Understanding (MoU) between HM Treasury, the FSA and the Bank declared that whereas the FSA had responsibility for regulating individual financial institutions, the Bank had responsibility for the ‘stability of the financial system as a whole’. How to interpret and act on this responsibility provided a perennial puzzle for Court, which again found itself in the position of having a responsibility without any independent means of carrying it out – not, at least, without appearing to stray into the responsibilities of the other two parties to the MoU.

During the 2007−08 financial crisis, however, the Bank was immediately drawn into carrying out its traditional role of lender of last resort in providing liquidity support to individual institutions and, alongside HM Treasury, into the resolution of institutions that failed. One of the matters reserved to Court is the approval of transactions ‘outside the ordinary course of business’. A number of such transactions required the approval of Court and a sub-committee of Court − the ‘Transactions Committee’ − was established to enable urgent cases to be agreed swiftly. That committee met (either in person or by teleconference) on 11 separate occasions between 2007 and 2009, reflecting the number of extraordinary interventions the Bank had to make during that time.

2009 Act

In the wake of the financial crisis, the 2009 Banking Act gave the Bank three new statutory functions and a further change in its governance arrangements which included reforms intended to clarify the Bank’s responsibility for financial stability and to place ownership of it with Court. The Bank was given a statutory financial stability objective for the first time – ‘to contribute^{footnote [47]} to protecting and enhancing the stability of the financial systems of the United Kingdom’ – and a Financial Stability Committee of Court was established by statute to advise Court on a financial stability strategy, and to monitor the Bank’s use of its new powers under the Act.

In line with the trend in corporate practice for smaller boards, Court itself was greatly reduced in size − from 16 to (up to) nine non-executive directors, one of which was to be appointed by the Chancellor to chair Court, rather than the Governor. This gave statutory blessing to an informal practice, adopted in 2003, of asking the senior non-executive director to chair Court meetings.^{footnote [48]} Both the statute and the previous informal arrangement reflected what was becoming the near universal practice in the private sector of separating the roles of Chair and Chief Executive Officer.

2012 Act

The 2012 Financial Services Act (the 2012 Act) created the FPC which, like the MPC, consisted of Bank executives and external members, chaired by the Governor. FPC’s role was to support the Bank in delivering its financial stability objective by focusing on systemic risks − so-called macro-prudential regulation.^{footnote [49]} Unlike the MPC, the FPC was originally established as a sub-committee of Court itself (rather than a standalone committee of the Bank), reflecting the expectation that Court would retain more involvement in financial stability matters − it was provided that Court would consult the FPC about its financial stability strategy (and the 2009 provision establishing the short-lived Financial Stability Committee of Court was repealed and the committee abolished).

It was also announced that the Bank would again take responsibility for banking regulation, together with regulation of insurers and investment banks − so-called microprudential regulation. This function would be managed in a separate authority within the Bank, the PRA. The Act also saw the creation of a third Deputy Governor, for Prudential Supervision, to act as Chief Executive of the PRA.

The cumulative enlargement of the Bank’s overall responsibilities and powers prompted questions about how, as an institution, the Bank was to be held accountable. In a report in 2011, the Treasury Committee recommended that Court be replaced by a new ‘Supervisory Board’.^{footnote [50]} This would have responsibility for the budget and allocation of resources between the Bank’s functions; its members would be fewer and be ‘eminent and professionally experienced individuals’ with specific skills in finance and prudential policy; they would see all MPC and FPC papers and observe their meetings; minutes of their meetings would be published; and it would have dedicated staff support. It would conduct ex post reviews of the Bank’s performance in the prudential and monetary policy fields, which would be published.

In response, Court accepted that the Bank’s new responsibilities would need to be accompanied by new accountability mechanisms, and proposed to establish an ‘Oversight Committee’, composed of the non-executive directors (albeit executive members could attend by invitation) and with access to the policymaking processes and papers of the Bank. Members would be permitted to attend and observe meetings of the statutory policy committees, and to commission ex post reviews from external policy experts. This formal power for Court to commission reviews was a notable development, and reflected the fact that earlier in 2012 Court had commissioned three independent experts to produce reviews to learn lessons on the Bank’s response to the financial crisis.^{footnote [51]} These were on the framework for liquidity provision to the banking system (Bill Winters), the provision of emergency liquidity assistance (Ian Plenderleith), and the MPC’s forecasting capability (David Stockton).

Other provisions of the 2012 Act included amending the term of the Governor to a single non-renewable term of eight years; this was a step, encouraged by the Treasury Committee,^{footnote [52]} to strengthen the Governor’s independence to prevent speculation and instability over whether a Governor’s term would be renewed.^{footnote [53]} It also extended the terms of non-executive directors from three to four years.

The 2016 and 2023 Acts

The 2016 Bank of England Act and 2023 Financial Services and Markets Act introduced further reforms to streamline the governance of the Bank. The Act abolished the Oversight Committee, transferring the latter’s functions to Court as a whole. This had the aim of ensuring Court operated as a unitary board, and of aligning Court with conventional corporate governance models, where executive and non-executive directors jointly oversee performance. The Act also created a fourth Deputy Governor, for Markets and Banking, and created an upper limit on the number of non-executive directors (‘not more than nine’).

The 2016 Act sought to place the statutory policy committees on a more similar (albeit not identical) footing. It ended the PRA’s original status as a legal subsidiary of the Bank and the PRA became an authority within the Bank, and established a new statutory committee of the Bank, the Prudential Regulation Committee (PRC), with responsibility for exercising the Bank’s functions in its role as the PRA. The Act also ended the FPC’s status as a sub-committee of Court and made it, like the MPC, a committee of the Bank, and also made the Bank subject to scrutiny by the National Audit Office.

Finally, the most recent set of legislative reforms came as part of the 2023 Financial Services and Markets Act. This placed the Financial Markets and Infrastructure Committee (FMIC) on a statutory footing, with its own statutory objective and independent members appointed by Court. It also comprehensively overhauled the Bank’s funding arrangements through the introduction of a new levy to fund the Bank’s monetary and financial stability operations.

3: Court today

As outlined in the preceding section, over the past three decades, the Bank of England’s responsibilities have increasingly been placed upon a statutory footing. As such, the Bank now operates within a detailed statutory framework set by Parliament. The broad intent underlying this framework is to ensure that the Bank is free from day-to-day political influence in carrying out its statutory functions. The framework is sophisticated in its design and varies depending on the precise functions being exercised by the Bank. At a high level, it operates by Parliament setting statutory objectives for the Bank and then granting the Bank operational independence to pursue those objectives. Principally, this is through the Bank’s statutory policy committees − MPC, FPC, PRC and FMIC, which are all chaired by the Governor (Box E). While specific policy responsibilities are reserved to the statutory policy committees, Court manages the affairs of the Bank as a corporation.

Court’s responsibilities

Court’s key responsibilities − set out in statute − are: determining the Bank’s objectives and strategy; and aiming to ensure the effective discharge of the Bank’s functions. Subject to that, Court’s aim is to ensure the most efficient use of the Bank’s resources. Court has also assumed the various oversight functions (previously carried out by the Oversight Committee) such as keeping the procedures of the statutory committees under review.

Court today delegates to the Governor the day-to-day management of the Bank, including the discharge of statutory functions, while reserving certain key decisions to itself. These are publicly set out in Governance of the Bank and Matters Reserved to Court.^{footnote [54]} For example, Court approves the Bank’s overall budget, the Bank’s annual report and accounts, major projects and the Bank’s risk management framework.^{footnote [55]} Court also appoints the Bank’s external auditors and approves remuneration of the most senior staff and pay policies throughout the Bank. While appointments to Court itself and the statutory policy committees are generally the prerogative of the Crown or the Chancellor, all other senior appointments within the Bank are made subject to Court’s approval.^{footnote [56]}

Members of Court are expected to follow the Seven Principles of Public Life, the so-called Nolan Principles, and Court is committed to meeting high standards of corporate governance. It expects to follow the UK Corporate Governance Code^{footnote [57]} to the extent appropriate and applicable, taking account of the statutory framework set by the 1998 Act and the fact that the Bank is not a public listed company (PLC). The unique statutory framework applicable to the Bank − including the fact that major functions are undertaken by statutory policy committees and that the appointment of the Governor (essentially the CEO) is a matter for the Crown (and not the board) − meaning that there are fundamental differences between the Bank and a regular PLC and the standards of a PLC should only be regarded as a useful benchmark and not a proxy.

Composition of Court

Court is a unitary board including both executive and a majority of non-executive directors. The five executive members are the Governor and four Deputy Governors (the Bank’s Chief Operating Officer also attends each meeting). There are not more than nine non-executive members (one of whom is traditionally from a trade union) including one member selected by the Chancellor to act as Chair of Court (currently David Roberts). This means that while Court has a maximum legal limit of 14 members (five executive and not more than nine non-executive members), in practice Court usually operates with around 12 members (as not all the non-executive director roles are filled) in line with good corporate practice.^{footnote [58]}

As with any company, directors are effectively appointed by the shareholder − in this case the Crown, on the advice of the Prime Minister and Chancellor − and the process follows the normal codes and practices for public appointments.^{footnote [59]} As noted, one fundamental difference between the Bank and a regular public limited company is that in the latter the board appoints the CEO, which is perhaps one of the most important decisions that resides in the board’s hand. However, in the case of the former, Court does not appoint the Governor (or the Deputy Governors); the appointment is made by the Crown.

In terms of tenure, the Governor serves on Court for a non-renewable period of eight years, the Deputy Governors for a renewable period of five years, and the non-executive directors for a renewable period of four years.

Although the detailed terms and conditions of the appointment are typically not set out in statute, there are some exceptions to this. In particular, a person is legally disqualified from appointment as a Governor if they are a Minister or a person employed in a government department. Governors must vacate office if they ever take on such positions and must work exclusively for the Bank. The Governors’ remuneration is not determined by HM Treasury, but by Court’s remuneration committee, a sub-committee of non-executive directors. Under the 1998 Charter, all members of Court must also swear a formal declaration on appointment that ‘in the execution of said office [they] will faithfully and honestly demean [themselves] according to the best of [their] skill and understanding’.^{footnote [60]}

While appointment of Governors is a matter for the Crown, the process for their removal can only be instigated by the Bank’s Court and on specified legal grounds. Court may only remove Governors if satisfied that they have been absent from Court meetings for over three months (without the consent of Court), that they have effectively become bankrupt, or that they are ‘unable or unfit’ to discharge their functions as a member.^{footnote [61]} The significance of these arrangements is that, in the words of a former Chair of Court, Governors ‘cannot be removed simply because the government of the day dislikes what they are doing or saying, not at least until their terms expire’.^{footnote [62]}

Relationship with the policy committees

In terms of the general position, as part of its oversight functions, Court must keep under review the Bank’s performance in relation to its objectives and keep the procedures of the statutory policy committees under review. To discharge this duty non-executive directors can attend policy committee meetings as observers and access relevant papers, subject to any actual or potential conflicts of interest. The following paragraphs draw out some of the specific differences in Court’s relationship with the individual committees. In relation to the MPC, the formulation of monetary policy is expressly outside of Court’s remit. But the duty to keep the procedures of MPC under review remain. It was Court that commissioned Dr Ben Bernanke (former Chair of the Federal Reserve and Nobel Prize winner) to conduct an independent review into forecasting for monetary policy and the processes which underpin MPC’s policy decisions. And as part of keeping the MPC’s procedures under review Court also has a special duty to ensure that the MPC takes proper account of regional, sectoral and other information (the MPC has a corresponding legal obligation to report on its activities to Court on a regular basis to support Court in discharging this duty).^{footnote [63]}

Court has additional responsibilities for financial stability. The 1998 Act provides that it is Court that is formally responsible for determining the Bank’s financial stability strategy (albeit consulting HM Treasury and the FPC). Court can − and has − delegated responsibility for setting the strategy to the FPC, but ‘retains responsibility’ for the strategy. The reasoning behind this is that the FPC does not have exclusive responsibility within the Bank for achieving the financial stability objective; the FPC is only responsible for making a ‘contribution’. Many other parts of the Bank also make contributions including, for example, the PRC, FMIC and Resolution.

The PRA’s strategy is set by PRC in consultation with Court. The PRC is also formally responsible for the adoption of the PRA’s budget, although this is subject to the approval of Court. An external member of the PRC regularly attends the Audit and Risk Committee (ARCo) to ensure the PRC’s concerns/issues are taken into account (as the PRA relies on the Bank’s systems and frameworks for monitoring risk).

While the external members of the MPC, FPC and PRC are appointed by the Chancellor, it is Court that is responsible for appointing the independent members of FMIC.

Court meetings and procedures

Court meets a minimum of seven times a year. The 1998 Act provides that ‘the record must specify any decisions taken at the meeting (including decisions to take no action) and must set out, in relation to each decision, a summary of the court's deliberations’. The record is taken by the Secretary of the Bank and must be published within six weeks of the day of the Court meeting. If there is no Court meeting within that period (which is true most of the time), the record must be published within two weeks of the next meeting. There is scope for redaction where information would in the opinion of Court be ‘against the public interest’. Any redactions are reviewed by the Secretary and then Court for potential de-redaction after three years. If not de-redacted after three years, records are published by the Bank after 20 years in line with the National Archive’s best practice.

There are three standing sub-committees of Court. These are: the Audit and Risk Committee (ARCo), the Remuneration Committee (RemCo) and the Nominations Committee (NomCo). The Nominations Committees’ remit has recently been expanded to include matters relating to the Bank’s culture.

As noted earlier, the Transactions Committee meets on an ad hoc basis, to advise the Governor on transactions that are outside the Bank’s usual course of business and where it is not practicable for the Governor to consult the full Court.^{footnote [64]} Other committees may be formed from time to time for specific pieces of business (for example property, banknote contracts).

Role of the Non-executive Directors

The Chair and fellow non-executive directors act as a vital source of independent challenge. As David Roberts, the present Chair, related to the authors: ‘This is the fundamental duty of non-executive directors: to bring their experiences from outside central banking, thereby exerting independent scrutiny and challenge to the Bank’s decision-making in support of the Bank in delivering its mission for the British public’.

Certain Court non-executive directors (for example the Chair and senior independent director as well as the Chairs of ARCo and RemCo) have specific responsibilities under the Senior Managers Regime.^{footnote [68]} For example, the Chair of ARCo is responsible for safeguarding the independence of the Bank’s internal audit and whistleblowing functions.

As noted earlier, there was an ‘oversight committee’ made up solely of non-executive directors, established by the 2012 Act, but this was abolished in a simplification of the structure in 2016. Today the functions of management and statutory oversight functions are vested in Court as a single governing body. The non-executives retain the legal right to meet separately from the executive and commission reviews independently.

Role in relation to the balance sheet

Since the financial crisis, the Bank’s balance sheet has expanded considerably. It has been increasingly important to strengthen the Bank’s governance over the balance sheet, particularly given the number of different policy committees with a potential interest in it (Box E). The Bank has published a set of ‘principles of engagement’ for these different committees in relation to the Bank’s balance sheet, including Court, given it is ultimately responsible for managing the risk profile of the Bank’s balance sheet in relation to financial and non-financial risk.^{footnote [69]}

These articulate that the role of Court should primarily be to assess whether such operations are within the Bank’s tolerance for financial and non-financial risk. The Bank’s risk tolerance is set out in documents that are themselves approved by Court, and detail that Court may judge that a proposed balance sheet operation exceeds the Bank’s risk tolerance and that the executive is responsible for assuring Court that a proposed course of action is within the Court-approved Bank risk tolerance.

The 1998 Act does not assign management of the Bank’s balance sheet to any of the statutory policy committees and does not prescribe a hierarchy between the Bank’s monetary policy and financial stability objectives. The objectives are generally expected to be complementary in nature, and there are established mechanisms in place to avoid conflicts arising. These include co-ordination within the executive and cross-membership of the statutory policy committees. In the unlikely event that a conflict cannot be resolved, the principles set out a ‘mediation’ role for the Chair of Court, whereby the Governor will consult the Chair of Court about the process to be followed to resolve it. Recognising that policy decisions must be taken by the responsible committees, the Chair’s role would be to recommend a process to mediate the conflict (rather than determining the outcome).

Role in relation to conflicts of interest

While the Governors are required to give exclusive services to the Bank,^{footnote [70]} non-executive directors of Court and external members of policy committees give only a proportion of their time to the Bank and will inevitably have outside interests. It is clearly desirable to bring individuals into the Bank’s senior decision-making committees with relevant and current experience in finance, business, markets, academia − as previously highlighted by the Treasury Committee who have observed the Bank ‘must ensure that it does not deter suitable candidates from joining its Committees by over-rigid rules on conflicts of interest’.^{footnote [71]} At the same time the Bank must have such rules in place, as parliamentarians have noted on a number of occasions, given the fact that any actual or perceived conflicts of interest could also pose a reputational risk to the Bank. Court plays the ultimate role in approving and monitoring compliance with all of the Bank’s conflict of interest policies.

Notably, in 2017, one of the Bank’s Deputy Governors resigned after not formally declaring to the Bank that a close family member worked at a Bank-regulated firm. In response, the Bank and the non-executive directors of Court commissioned a major external review of the Bank’s approach to conflicts of interest.^{footnote [72]} The review strengthened Court’s oversight of conflicts of interest matters, including regular reporting on conflicts matters, underlining Court’s role in approving key conduct policies − in particular ‘Our Code’ (the Bank’s code of conduct) and creating a new role of Conflicts Officer which now resides with the Secretary of the Bank.

Each of the Bank’s committees has, either in statute or in its procedures, provisions for managing conflicts of interest − that is, situations in which a member has a personal interest in a matter being discussed or decided in a meeting, or an opportunity to profit from information provided to the committee. Those policies include, for all members of Court and the policy committees, a ban on acquiring securities issued by regulated firms, requirements to disclose all financial holdings of any kind to the Bank, and to obtain the Bank’s approval before undertaking certain transactions. Those members who hold a material investment portfolio are strongly advised to place it under full discretionary management on terms approved in advance by the Secretary, and members of Court and the policy committees must report their stock of financial assets and liabilities annually to the Secretary. Furthermore, since 2023 and with the approval of Court, in the interests of transparency, the Secretary also established and maintains a public register of interests for the Bank’s most senior officials, which sets out their relevant financial and non-financial interests.

Conclusion

The changes in Court over the past 30 years have been more dramatic than those that have taken place over the previous three centuries. The Court of 1994 − a year when the Bank was in any case looking back, over its first 300 years − might have felt at home in the same room 50 years earlier. The Court of today would not.

Much reduced in size, with a non-executive chair, a senior independent director and effective Audit and Remuneration Committees, the modern Court is much more in line with best practice in corporate governance, while respecting the unique statutory framework that applies to the Bank of England as the UK’s central bank. Its task is immeasurably greater too, reflecting the broad range of the Bank’s statutory functions, the complex relationships of the individual policy committees, and the need to make major investments in technology and infrastructure in the age of artificial intelligence.

The challenge for the Bank’s executive is to unify these functions and Committees and deliver coherent policies in support of monetary and financial stability. For the non-executive directors, it is to provide oversight and constructive challenge. And for Court as a whole, the challenge is to ensure that the Bank is properly accountable − to Parliament, to HM Treasury (as the Bank’s shareholder), and ultimately to the wider UK public − for the responsibilities that it has been given and the resources that it now deploys.

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