THE HISTORY OF THE BANK OF ENGLAND

The Bank of England was founded in 1694 to act as the Government's banker and debt-manager. Since then its role has developed and evolved, centred on the management of the nation's currency and its position at the centre of the UK's financial system.

Events and circumstances over the past three hundred or so years have shaped and influenced the role and responsibilities of the Bank. They have moulded the culture and traditions, as well as the expertise, of the Bank which are relevant to its reputation and effectiveness as a central bank in the early years of the 21st century. At the same time, much of the history of the Bank runs parallel to the economic and financial history, and often the political history of the United Kingdom more generally.

Key moments in the Bank's history - a brief guide

King William & Queen Mary

When William and Mary came to the throne in 1688, public finances were weak. The system of money and credit was in disarray. A national bank was needed to mobilise the nation's resources.

William Paterson

The Scotsman William Paterson proposed a loan of £1,200,000 to the Government. In return the subscribers would be incorporated as the Governor and Company of the Bank of England.

The Royal Charter

The money was raised in a few weeks and the Royal Charter was sealed on 27th July 1694. The Bank started life as the Government's banker and debt-manager, with 17 clerks and 2 gatekeepers. The first governor was Sir John Houblon, who is depicted in the £50 note issued in 1994. In 1734 the Bank moved to Thread-needle Street, gradually acquiring land and premises to create the site seen today.

Commercial functions

The Bank managed the Government's accounts and made loans to finance spending at times of peace and war. A commercial bank too, it took deposits and issued notes.

The 18th Century

During the 18th Century the Government borrowed more and more money. These outstanding loans were called the National Debt.

1781: renewal of the Bank's Charter

Reliance on the Bank of England was such that when its charter was renewed in 1781 it was described as 'the public exchequer'.

The bankers' bank

By now the Bank was acting as the bankers' bank too. It was liable to fail if all its depositors decided to withdraw their money at the same time. But the Bank made sure it kept enough gold to pay its notes on demand.

The 'Restriction Period'

By 1797 war with France had drained the gold reserves. The Government prohibited the Bank from paying its notes in gold. This Restriction Period lasted until 1821.

The 19th Century

The 1844 Bank Charter Act tied the note issue to the Bank's gold reserves. The Bank was required to keep the accounts of the note issue separate from those of its banking operations and produce a weekly summary of both accounts.

Lender of last resort

The Bank Return, as it's called, is still published every week.

In the 19th Century the Bank took on the role of the lender of last resort, providing stability during several financial crises.

The First World War: 1914-18

During the First World War the National Debt jumped to £7 billion. The Bank helped manage Government borrowing and resist inflationary pressures.

Gold

In 1931 the United Kingdom left the gold standard; its gold and foreign exchange reserves were transferred to the Treasury. But their management was still handled by the Bank and this remains the case today.

Nationalisation 1946

After the Second World War the bank was nationalised. It remained the Treasury's adviser, agent and debt manager.

Financial crises

During the 1970s, the Bank played a key role during several banking crises. The Bank was at the fore when monetary policy again became a central part of Government policy in the 1980s.

Operational independence May 1997

In May 1997 the Government gave the Bank responsibility for setting interest rates to meet the Government's stated inflation target.

Managing the modern bank

The 1998 Bank of England Act made changes to the Bank's governing body too. The Court of Directors, as it's known, is now made up of the Bank's Governor and 2 Deputy Governors, and 16 Non-Executive Directors.