Bank of England (BoE)

• Interdependence & gov't involvement with banks

  - BoE gained interdependence in 1997, power to set interest rates by a new monetary policy committee

  
  

  - the 1997 changes don't make the BoE fully independent, as the UK government can still override the Bank in an emergency

  
  

  - It's role falls short of many other central banks in that responsibility for setting inflation/monetary targets rests with government
• what is the gov't target for inflation?

  2% (+/- 1%)
• Functions of the BoE (1)

  - manages the national debt (accumulation of past PSBR's), includes: repayments to the gov't securities when they mature, floating new issues of long term securities, payment of interest, weekly issue of Treasury Bills

  
  

  - gov't agent for operating monetary policy (change Ms and I/R)

  
  

  - administrator of any exchange control regulations (i.e control capital outflows/inflows?), removed in '79
• Functions of the BoE (2)

  - gov't agent in the foreign exchange market:

  
  

  > can use reserves of gold, foreign currency & SDR's from the exchange equalisation account to buy £ to support the exchange rate

  > sell £ to buy foreign currency to ↓ the exchange rate
• Functions of the BoE (3)

  - lender of last resort: BoE prepared to assist Banking system when a shortage of liquidity may lead to a loss of confidence (moral hazard - banks relying on the support of gov't & BoE)

  
  

  - supervisor of the banking system, main areas to check:

  > foreign currency exposure > capital adequacy > asset quality

  > management quality > earnings > liquidity > provision for bad debts
• financial policy committee


  - it identifies & monitors risks that threaten the resilience of the financial markets e.g stress test
• prudential regulation authority


  - supervision of banks at a microlevel
• financial conduct authority


  - protect consumers & promote competition