Bank of England

Bank of England, central bank of Great Britain, a financial institution with special privileges and responsibilities. Located in London, it is often called the Old Lady of Threadneedle Street. The Bank of England was incorporated on July 27, 1694, as a private joint-stock association, with a capital of £1.2 million. In return for the loan of its entire capital to the government it received the right to issue notes and a monopoly on corporate banking in England.

From the outset the Bank of England was a servant of the government. In 1844 the bank was divided into two departments, the Issue Department and the Banking Department. The former, strictly regulated, was given the authority to issue notes covered by government securities in the amount of £11,015,100, representing the indebtedness of the government to the bank. Notes could also be issued on other securities, on gold coin and bullion, and on silver bullion. Gradually the right to issue notes, once a privilege of several British banks, was restricted to the Bank of England.

In the Banking Department the Bank of England differs from other joint-stock banks because it is the banker for the government and the repository of the British monetary reserves.

On March 1, 1946, the bank, privately owned for 252 years, was placed under government ownership, the Treasury holding the capital stock. The nationalized bank, operating under the charters of 1694 and 1946, manages the British national debt, issues notes, and administers exchange control regulations. The bank is administered by a governor, a deputy governor, and 16 directors; all are appointed by the Crown.

As Great Britain’s central bank, the Bank of England has traditionally enjoyed less independence from political control than similar institutions such as Germany’s Bundesbank and the United States Federal Reserve System. In the mid-1990s some changes to established practices, such as making public the minutes of the regular meetings between the governor and the Chancellor of the Exchequer, were introduced to improve the bank’s credibility as an agent against inflation. In May 1997 the new Labour Chancellor of the Exchequer, Gordon Brown, carried the process further by giving the Bank of England effective operational independence, with sole responsibility for setting base interest rates in Great Britain.