Question:
“So, the ‘special’ nature of banks has reflected not just their distinctive functions, and the
importance of those functions to the wider economy, but also their peculiar vulnerability to
liquidity pressures. Central Banks evolved in response to this vulnerability...”
(Eddie George, ‘Are Banks Still Special?’)
In light of the above statement, critically analyse the roles and functions of the Bank of
England.
Word count: 1259
Introduction:
All functions of the Bank of England (BoE) can be analysed in the context of two key
objectives: maintaining price stability and ensuring financial stability. Each of the roles and
functions and their evolution to the liquidity pressures will be analysed in turn.
Maintaining Price Stability
It is a statutory responsibility to maintain the price stability by maintaining the value of Sterling
both in the UK and overseas (s.11 Bank of England Act (BEA) 1998). The government sets
inflation targets at least once a year, whereby the BoE acting through the Monetary Policy
Committee is responsible for setting of interest rates on a monthly basis to support these targets.
Hence, the BoE has an operational responsibility. The regular monitoring forestalls surges in
interest rates as well as allows for independency in how these rates are set thereby contributing
to the stability of the financial system as a whole.
In the outcome of the Global Financial Crisis (GFC) the Committee has adopted a method of
quantitive easing. Whereby if the economy is not functioning the BoE will push the money
into the economy by buying bonds and securities. This encourages other banks to lend at low
interest rates stimulating the economy.
Ensuring Financial Stability
Another key objective of the BoE is ensuring financial stability within financial service sector
and economy from unexpected activity that may damage confidence in the sector (s.2A(1) BEA
1
“So, the ‘special’ nature of banks has reflected not just their distinctive functions, and the
importance of those functions to the wider economy, but also their peculiar vulnerability to
liquidity pressures. Central Banks evolved in response to this vulnerability...”
(Eddie George, ‘Are Banks Still Special?’)
In light of the above statement, critically analyse the roles and functions of the Bank of
England.
Word count: 1259
Introduction:
All functions of the Bank of England (BoE) can be analysed in the context of two key
objectives: maintaining price stability and ensuring financial stability. Each of the roles and
functions and their evolution to the liquidity pressures will be analysed in turn.
Maintaining Price Stability
It is a statutory responsibility to maintain the price stability by maintaining the value of Sterling
both in the UK and overseas (s.11 Bank of England Act (BEA) 1998). The government sets
inflation targets at least once a year, whereby the BoE acting through the Monetary Policy
Committee is responsible for setting of interest rates on a monthly basis to support these targets.
Hence, the BoE has an operational responsibility. The regular monitoring forestalls surges in
interest rates as well as allows for independency in how these rates are set thereby contributing
to the stability of the financial system as a whole.
In the outcome of the Global Financial Crisis (GFC) the Committee has adopted a method of
quantitive easing. Whereby if the economy is not functioning the BoE will push the money
into the economy by buying bonds and securities. This encourages other banks to lend at low
interest rates stimulating the economy.
Ensuring Financial Stability
Another key objective of the BoE is ensuring financial stability within financial service sector
and economy from unexpected activity that may damage confidence in the sector (s.2A(1) BEA
1
