Models of Central Banking and the Organisation of the Bank of England

The way in which the Bank of England is organised has become outdated. It is based on a separation of monetary policy, financial stability and public debt management, which is no longer sustainable.

Pub. Date
22 November, 2022
Pub. Type
Bank of England Building and Duke of Wellington statue

Main points

  • Key monetary policy decisions after the financial crisis were taken by the executive managers of the Bank of England without recorded discussion by the MPC.
  • After the global financial crisis, the Bank avoided credit risk as far as possible but instead, with the Treasury’s acquiescence, took massive interest rate risks, which are now proving costly.
  • The rescue of the gilt market in September/October 2022 was necessary, well-planned and well-executed. Yet despite what the Bank of England said, it had important implications for monetary policy.
  • The Bank of England needs to be re-organised to eliminate the arbitrary distinction between monetary policy and financial stability.

In the quarter-century since the Bank of England Monetary Policy Committee was established, the various financial operations of the Bank of England and of the Government have become more inter-dependent, as a result of the financial crisis, quantitative easing, the response to Covid-19, and uncertainties about fiscal policy. The separation of decision making among the various bodies within the Bank of England – the Monetary Policy Committee, the Financial Policy Committee and the executive management of the Bank - has become anomalous.

In practice, important decisions involving very large financial risks have been made by the executive management of the Bank, at meetings whose minutes have not been published, and there has sometimes been a lack of transparency. This applies in particular to the decision after the global financial crisis to avoid taking credit risk as far as possible, and instead, through quantitative easing, to take enormous interest rate risks on the public sector’s behalf. The paper advocates a radical simplification of the Bank of England’s management structure in the interests of more efficient decision making and greater transparency.