The Bank Still Rocking After 300 Years

October 13, 2008

Even although its a love, hate, need relationship, banks are as necessary to everyday living as that early morning cuppa to kick us into life each morning. We swallow a cup of tea or cup of coffee almost without hesitation or even thought. Know what I mean? You bet and its the same with our local bank. We use it almost without thinking. But theres more to it than just the Good morning! greeting and pleasant smile from the employee behind the counter.

When you walk into your bank, youve entered the doorway of an intangible pyramid, stretching back into time and space, leading us to the origin. Yes, were going to dig deeper into the bank, but not the one we might enter daily or occasionally. Were talking the Bank here. Understand? No? To explain, the Bank, within the UK financial industry sector, usually means one thing, the Bank of England.

It was founded by a group of rich and powerful merchants just a little over three centuries ago and then granted a Royal Charter by William III. In the year following the end of the Second World War, the Bank of England was nationalised, formalising the long relationship with the UK Crown. It then became the United Kingdoms central bank.

Most countries have a central bank. In the USA, it is called the Federal Reserve. The European Union has its European Central Bank. So what exactly is a central bank? Why do we need such a set-up?

A central bank has a number of complex tasks to perform. The first of these is to act as banker to the government itself. The central bank - the Bank of England - also oversees the economy. And it regulates and controls the supply of money.

The UK government actually has an account with the Bank. Surprised? So do all of the major banks. They, too, have accounts with the Bank of England, which they use to borrow cash or to deposit money.

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 rates will eventually feed through to us all in one way or another. For example, itll determine how much well pay in interest payments for the mortgage. Itll add to the final cost of the car loan weve just taken out, the computer weve just bought on credit, or the rate of return offered on our savings account.

Yes, the Bank may be more than 300 years old, but no one would argue that its reach, influence and relevance has not grown, in greater proportion, with each passing year.

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