The year 2008/09 presented an unprecedented set of challenges for the Bank as it responded to the ongoing financial crisis and the significant economic downturn now affecting economies globally. It is difficult to overstate the extent of the issues that the Bank’s Executive has faced.

The crisis has required them to take key monetary policy decisions, design and implement innovative market facilities to improve liquidity and credit conditions, and make a substantial input into wider financial sector policy initiatives and banking reform legislation. It has been a tough year on any measure.

In such turbulent and uncertain conditions, monetary policy has never been more difficult. But, although the policy response has been challenging, the monetary policy framework and objective has always been very clear. The decisions of the Monetary Policy Committee (MPC) are not of course subject to Court’s oversight, but the procedures that support those decisions are. Over such a testing period, it has been important to ensure that the MPC has had effective support and that processes and resources were able to respond flexibly to changing demands.

There have been valuable discussions about the MPC’s forecasting and other processes in the context of the recent crisis. More recently, Court discussed the potential use of credit and monetary easing measures as interest rates approached zero. The subsequent use of the Asset Purchases Facility for monetary policy purposes from early March has been very effectively supported by the Bank.

Resources were diverted from other workstreams as priorities changed. The focus and effort evident across the Bank to meet this challenge has been extremely impressive. It will take time to observe the impact of these measures but the early signs appear positive. In due course, it will be important for the Bank to ensure it can adjust back to more normal conditions and resume the work that has necessarily been displaced over the past year.

In contrast to the purpose and clarity of the Bank’s monetary policy role, the financial crisis has crystallised a belief within the Bank, and among the Non-executive Directors, that the Bank’s financial stability role needed greater clarification. The Banking Act 2009 gives the Bank the statutory objective for Financial Stability that Non-executive Directors believed was necessary, though further work will be needed to articulate precise responsibilities and powers in the context of the policy response to the financial crisis. The Act also gives the Bank responsibilities within the Special Resolution Regime (SRR) to deal with troubled institutions.

This is a significant development. The Bank’s powers have already been successfully used in relation to Dunfermline Building Society. I would like to acknowledge the significant contribution that has been made by Bank staff in forming the legislation and the detailed arrangements to implement it. ...

Download Bank of England Annual Report 2009

PDF format, 1.5MB, 104Pages.

Contents
2 Foreword by the Chairman of NedCo
4 Foreword by the Governor
6 Governance and accountability
8 The Court of Directors
10 The Executive Team
12 Organisation overview
14 Review of 2008/09
26 The Bank’s priorities in 2009/10
30 Expenditure review
33 Remuneration of Governors, Directors and MPC members
37 Governance, financial statements and risk
43 Report by the Non-executive Directors

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