Financial Institutions: The Bank of England

July 19, 2008 by Brendan

CeMAP

During CeMAP training, delegates learn about different financial institutions, such as the Bank of England. Here is a short summary of the Bank of England, what it does and its role within the mortgage market:

The Bank of England is effectively the banker for the banks. All the major banks have an account with the Bank of England.

The Bank of England has the responsibility of setting the interest rates to the banks, which influences their interest rates to the public.

The Bank of England is also the banker to the government, so when the government has a deficit (i.e. it is spending more money than it has coming in), then the Bank of England automatically makes a loan to the government to cover that deficit.

From May 1997, the Bank of England’s Monetary Policy Committee (MPC) has had the responsibility of setting the UK interest rates. They meet regularly, once each month, to decide on the current base rate. They set the current base rate with the aim of meeting the inflation target set by the government.

The Bank of England is also responsible for regulating the supply of money, i.e. it makes sure that there is enough money in circulation.

The Bank of England used to regulate the UK banks themselves but since June 1998, that responsibility has passed to the Financial Services Authority (FSA).

For the CeMAP exam, there is not much more to learn about the Bank of England. CeMAP training covers the FSA’s role in much more detail.