HISTORIC PRESS RELEASE : Bank of England Bill Published [October 1997]

The press release issued by HM Treasury on 28 October 1997.

The Bill, which establishes the Bank of England Monetary Policy Committee and transfers banking supervision from the Bank of England to the Financial Services Authority was published today.

The Bank of England Bill, gives effect to the policy changes announced by the Chancellor, Gordon Brown on 6 May when he announced a new framework for monetary policy and 20 May when the transfer of banking supervision was announced.

The main provisions are:

• setting out the monetary policy objectives of the Bank: to maintain price stability and, subject to that, to support the Government’s economic policy, including its objectives for growth and employment;
• establishing the Monetary Policy Committee, which will have responsibility within the Bank for formulating monetary policy. The Committee will comprise the Governor, his two deputies and six other members. Two of those members will be the Bank officials responsible for monetary policy analysis and monetary policy operations respectively. The remaining four will be appointed by the Chancellor for their knowledge and experience;
• giving the Bank statutory operational responsibility for  monetary policy. The Treasury will still have reserve powers, in extreme economic circumstances, to direct the Bank with respect to monetary policy, if they are satisfied that this is required in the public interest;
• transferring to the Financial Services Authority the Bank’s functions in relation to the supervision of banks;
• setting in place a new accountability framework for the Bank, based on:
• • statutory duties of the Bank’s Court of Directors, and specific responsibilities for the non-executive Directors;
  • requirements for the Bank’s accounts; and
  • laying the Bank’s annual report before Parliament.
• greater transparency in the Bank’s operations:
• • the Monetary Policy Committee will publish its actions, minutes of its meetings and a quarterly report; and
  • the Court of Directors will review the Monetary Policy Committee’s procedures and make an annual report.
• placing on a statutory basis arrangements for banks, building societies and overseas institutions to place deposits with the Bank in order to fund its operations.

The Government’s intention is that the overall costs to financial institutions in aggregate, under the new arrangements, will be no greater than under the current arrangements, and preferably lower. The Financial Services Authority issued today a consultation document on its fee structure for banking supervision. The Treasury will be issuing soon a consultation document on the statutory cash ratio deposit scheme.

The Bill was given its First Reading in the House of Commons today.