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Your money and the financial system Page 2
YOUR MONEY
AND THE FINANCIAL SYSTEM
The Bank of England has a unique role in our economy, promoting the good of the
people of the United Kingdom by maintaining monetary and financial stability.
The crisis that began in 2007 seriously disrupted the operation of the financial
system and tipped the world into a major economic downturn. It exposed serious
shortcomings in the tools available to deal with failing banks and the need for
safeguards to preserve the safety and soundness of the financial system.
Far-reaching reforms of the regulatory system followed, including an expanded role
for the Bank of England.
A new Financial Policy Committee was created at the Bank of England to spot threats
to the financial system as a whole. And responsibility for the safety and soundness
of banks, building societies and insurers passed to the new Prudential Regulation
Authority, a subsidiary of the Bank of England.
This pamphlet explores the problems posed by the financial crisis, the major
regulatory reforms that followed, and the new responsibilities of the
Bank of England. It covers:
• The global financial crisis
• What is the financial system
• Capital and liquidity: the building blocks of a safer financial system
• Why is a bank’s capital important
• Why is a bank’s liquidity important
• How did the crisis change financial regulation in the UK
• The Bank of England’s Financial Policy Committee (FPC)
• The Prudential Regulation Authority (PRA)
• What happens if commercial banks run short of money
A stable financial system means households and businesses can have confidence
their money is safe, insure against risk and rely on access to finance when they need it –
in good times and in bad.