While we all know the current Threadneedle Street home of the Bank of England, this was not the original birth place of this great British institution. In fact life for the Bank in the very early days was so much different to today that it would be hardly recognisable to those who founded the operation many years ago.
Setting up the Bank of England
When you consider that the Bank of England has a history which goes back to 1694 it is not hard to see why it still holds so much power and is held in such high esteem by the international community. The operation has had more experience of the international world of finance than many of the so called super powers of today put together. So when did it all start?
It may surprise some to learn that the Bank of England was set up by Scotsman William Paterson way back in 1694 as the bank of the government of the day. Initially a loan of some £1.2 million was proposed in 1694 to assist the government with finances required to run the country and keep the economy moving forward. Subscribers were invited to contribute to the amount required and the whole venture was incorporated under the banner of The Governor and Company of the Bank of England.
The Bank actually came into being on the 27th July 1694 when under Royal Charter it was included in the Tonnage Act of that year. At the time the UK government’s finances were in a real mess and such was the perceived risk of lending money to the government that an interest charge of 8% was agreed upon together with a £4,000 per annum management charge (do not forget that this was in the 1600s!). The first Governor of the Bank was Sir John Houblon who is the face you see on the fifty pound notes of today.
Progress of the Bank of England
After initially being set up as a commercial operation to lend money to the government of the day, the Bank became a vital cog in the UK economy and the original royal charter was renewed in 1742, 1764, and 1781 as the importance of the Bank’s role in the UK became ever clearer.
Originally sited at the Temple of Mithras in London’s Walbrook area the bank did not move to its current Threadneedle Street venue until 1734 where it has become a central figure in the UK financial markets and a great spectacle for visitors to these shores. At the time there was great pressure to resist the move but it went through and the Bank had moved on to a new era, an era which would see its roll in society grow and grow.
Changes to Bank of England operations
While it originally started as a commercial bank, lending money to the government of the day on commercial terms the Bank became heavily involved in the area of National Debt in the late 1700s using a growing asset base of gold bullion as a guarantee to honour the value of bank notes it released to the markets.
The 1844 Bank Charter Act was a major point in the development of the Bank of England and gave the operation the sole right to issue banknotes in England although a small number of banks retained their right to produce notes outside of London. The Bank of Scotland is one bank which still issues its own notes to this day – although they are backed by the government under a deposit agreement. Many people may not be aware but the Bank of England was given the sole responsibility for dictating UK interest rates back in 1870, an area in which it has been heavily involved in ever since.
Modern day Bank of England
In the 1930s the former gold standard, i.e. the asset base of the Bank of England, was abolished and the country’s gold and foreign exchange reserves were transferred to the Treasury office of the government although the Bank still maintained control over management of the growing asset base. This was the first major step towards nationalisation of the Bank of England operation which occurred in 1946 when the Labour government came to power.
By the time the operation had been taken in-house by the government there had already been a marked change in the operations and future direction of the Bank. The commercial side was reduced and eventually wound down, the government lending operations increased in size and the Bank of England soon became heavily involved in the day to day operations of the UK financial markets which by this time had grown substantially since the Bank’s early days. The term, “the lender of last resort” was born.
Under the terms of the Bank of England Act 1998 Gordon Brown ensured that the Bank was able to operate independently of political influence, putting the management in charge of interest policy and hitting the government’s inflation targets of the day. However, today there appear to be moves to take away part of the Bank’s independence as the recent credit crunch and property crisis has open up old disagreements between those on the political and financial sides of the fence.
Bizarre facts about the Bank of England
Between 1694 and 1725 all bank notes in the UK were hand written by bank cashiers and the notes were physically made payable to someone – from 1725 up until 1855 there was partial printing of notes.
German authorities attempted to flood the UK with 500,000 forged bank notes of between £5 and £50 denominations but when the plan failed they used them to pay agents across Europe. Some of these notes are still in existence today.
In 2006 a delivery of £53 million in Bank of England notes was stolen from a depot in Tonbridge, which is the largest heist of its kind.
Street artist K-Guy has erected a tribute “In Loving Memory of The Boom Economy” which is outside the famous Bank of England building on Threadneedle Street.