Britain’s central bank is about to become even more powerful. Its new boss will find it harder to run

The Bank of England

The Old Lady bulks up

Britain’s central bank is about to become even more powerful. Its new boss will find it harder to run

Sep 1st 2012 | from the print edition

EVEN following decades of show-off modern architecture in London’s financial district, the Bank of England’s headquarters in Threadneedle Street remains one of the City’s most imposing structures. It sits behind a huge neoclassical wall, dating from an era when anti-capitalist riots were a serious matter. An immense vault lies underground.

Yet the edifice is not nearly big enough to house all the staff needed to carry out the bank’s remit, which is being greatly expanded by legislation making its way through Parliament. Around next April, the “Old Lady of Threadneedle Street” is expected to resume the role of supervising commercial banks that it lost in 1997. A thousand or so staff will be transferred from the defunct Financial Services Authority (FSA) to a new body, the Prudential Regulation Authority, under the central bank’s auspices. They will move into 20 Moorgate, a building recently vacated by Cazenove, an investment bank bought by JPMorgan Chase.

The Bank of England’s headquarters will continue to house its monetary-analysis wing, which provides the brainpower and number-crunching that informs the decisions of the nine-strong monetary-policy committee. Set up by the previous Labour government, the committee uses its power over interest rates and the purchase of government bonds (so-called “quantitative easing”) to hit its mandated target of 2% inflation.

The central bank’s other wing, which looks after financial stability, fell into neglect until it was revived by the global crisis. The bank is to be granted new powers, such as varying over the business cycle the amount of capital banks must hold as a buffer, in order to preserve the financial system from another blow-up. The Bank of England’s overall reach will be enormous. An institution that watched a credit boom develop and was caught flat-footed in the early weeks of the financial crisis is being rewarded with an expansion of its powers. Can it handle them?

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