Love them, hate them, need them, banks are as much a part of all our lives as the ritual cup of tea or coffee to get us started in the morning. We drink that cuppa almost without thinking about it, right? Same with banks. We use them now as a matter of routine, without pausing to consider what lies behind it all.
When you walk into your local branch, you've entered the doorway of an intuitive pyramid, stretching back into time and space, leading us to the origin. Yes, we're going to dig deeper into the institution, but not the one we might enter daily or occasionally. We're talking 'the Bank' here. Understand? No? To explain, 'the Bank', within the UK financial industry sector, usually means one thing, the Bank of England.
Founded by a group of wealthy merchants over 300 years ago, it was later granted a Royal Charter by William III. In 1946, the relationship with the State was formalized and the Bank of England became the central bank for the United Kingdom.
There's nothing unusual about the concept of a central bank. Most countries have them. The USA has one, called the Federal Reserve, and the European Union has one, too, the European Central Bank. So what's a central bank and Why do we need them?
It has a number of complex tasks to perform. The first of these is to act as banker to the government itself. The central bank also oversees the economy. And it regulates and controls the supply of money.
Did you know that the government (of course, we're talking UK here) has its own account held at 'the Bank'? Did you also know that all of the major banks have accounts there, too, to deposit or obtain cash?
Thus interest rates offered by the Bank of England to depositors and borrowers – in other words, the major banks themselves – impact money market interest rates.
Such money market rates typically feed through to me and you in one form or another, determining, for example, what we pay in interest payments for the mortgage. It'll add to the cost of a car loan, or to the cost of that computer we've just taken out on credit. Savers, too, will feel the effect, through the level of return offered on savings accounts.
Yes, 'the Bank' may be more than 300 years old, but no one would argue that it's reach, influence and relevance has not grown, in greater proportion, with each passing year.