The old Lady of Threadneedle Street: the bank of England

Contemporary Review, Nov, 2005 by Wilf Altman

CENTRE of international finance, symbol of stability, banker to the British Government and nation, custodian of the currency, guardian of the official reserves of gold and foreign currency, the Bank of England, Britain's central bank, can claim all these roles--some even from the time it was granted a Royal Charter in 1694.

Yet, behind the great trappings and traditions, what has made this world-famous institution such a focus of continued fascination to overseas visitors, to everyone even mildly interested in finance and, of course, to governments and bankers all over the globe? When you think of your local bank, the manager and the people who run it, it becomes even more intriguing to speculate how a vast national bank operates and what sort of man masterminds and rules it.

The most important event in the Bank's recent history has been the new Blair Government's decision in May 1997 to give the Bank independence to set interest rates and the defeat of the Governor last August when his harshest supporters were outmanoeuvred to deliver the cut in interest rates that the stock market hoped for.

Few events in the life of The Old Lady of Threadneedle Street, as the Bank of England is affectionately known, are as significant as the appointment of a new Governor.

Just how important the Governor can be in domestic and international finance was well illustrated by Lord Richardson in the latter part of the last century. His ten-year tenure was noted for at least three major achievements: as an influential figure in international central bank diplomacy, notably as Chairman from 1981 of the top nations group of Ten, with a key role in helping tackle the 1982 international debt crisis; his handling of the secondary banking crisis in Britain in 1973-5, when many banks ran into trouble with their balance sheets following the collapse of the property boom; his pressure for more restrictive policies after the inflation in 1975/6.

Not surprisingly, when he retired from the Governorship a series of farewells culminated at 10 Downing Street, where three Prime Ministers and five Chancellors were present at a dinner in his honour.

In the City of London it has become almost conventional to rank Lord Richardson with that most legendary Governor of the interwar years, Montague Norman, still recalled as a handsome, shy and fascinating man with a trim Vandyke beard, probably wrongly judged as the Governor who crucified industry on a cross of gold, by putting Britain back on the gold standard at an exchange rate where it just could not compete in world trade.

The key factor which linked the two men was the authority they brought to the Bank, not only in their City parish, but far beyond.

'To many people', Lord Richardson has pointed out, 'the Bank of England may seem a rather mysterious place. Certainly a building surrounded by a windowless wall is bound to excite curiosity. If I had to sum up what we are about in a few words, I would go back to a phrase used nearly three hundred years ago. The original charter granted to the Bank by King William and Queen Mary in 1694 said that the Bank should 'promote the public Good and Benefit of our People'. Put in modern terms, that is still what we set out to do today--to promote an efficient and healthy financial framework within which all of us in this country can live and conduct our affairs'.

How has the Bank changed since 1694? How is it organised? What does it actually do?

Creating the Bank of England back in 1694 was the first step towards central banking in Britain. It appears that the Government of the day needed money to pay for the war against France and a Scottish merchant, William Paterson, came up with the idea of founding a bank which could lend its capital to the Government. So, in the spring of 1694, Parliament gave its approval to an Act which provided for the setting up of a company splendidly entitled 'The Governor and Company of the Bank of England'. The public were invited to invest in the company and [pounds sterling]1,200,000 was very quickly subscribed to what became known as Bank of England stock.

The Bank was granted a Royal Charter on 27 July 1694 and Sir John Houblon was appointed the first Governor, starting in business at Mercers' Hall, Cheap-side, City, with a staff of nineteen and within a few months issuing notes carrying the name of the Bank of England.

The move to Threadneedle Street took place exactly forty years later by which time there were nearly one hundred staff and the Bank's role continued to expand. By 1766, for instance, when William Pitt the Elder was still Prime Minister, the Bank had become not only Banker to the Government and to most departments of State, but had also started to manage and act as registrar of Government securities. Today, the Registrar's Department is believed to be the largest department at the Bank after the Printing Works, based in Loughton, Essex, about twelve miles from the City of London, where several thousand people work on designing and printing bank notes and minting coins for many countries, and also deal with dirty and damaged notes which are withdrawn from circulation and destroyed.