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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.
Page 3 The Bank of England is able to lend money to keep the banking system operating smoothly. The Bank of England oversees the operation of financial infrastructure, including the main payment systems in the UK. LIQUIDITY INSURANCE The Bank of England has special resolution powers allowing troubled banks to fail in an orderly way. PAYMENT SYSTEMS SPECIAL RESOLUTION The Bank of England and the financial system PRUDENTIAL REGULATION AUTHORITY FINANCIAL POLICY COMMITTEE The Prudential Regulation Authority is responsible for the safety and soundness of banks, building societies, credit unions, insurers and major investment firms. MONETARY POLICY COMMITTEE The Bank of England’s Monetary Policy Committee sets interest rates to keep inflation low – a key ingredient of a stable financial system. The Bank of England’s Financial Policy Committee is responsible for spotting and fixing threats to the stability of the financial system as a whole.
Page 1: Your money and the financial system
Page 5 and 6: Page 5 In the UK, the high-street b
Page 7 and 8: Page 7 Each day the financial syste
Page 9 and 10: Page 9 ASSETS A bank uses its capit
Page 11 and 12: Page 11 A bank is insolvent if its
Page 13 and 14: Page 13 A bank is insolvent if with
Page 15 and 16: Page 15 The Financial Policy Commit
Page 17 and 18: BUILDING SOCIETIES Page 17 The FPC
Page 19 and 20: Page 19 The PRA uses judgement to f
Page 21 and 22: Page 21 Only banks and building soc
Page 23 and 24: Page 23 YOUR MONEY AND THE FINANCIA

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