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The Controversial Approach of the Bank of England - Essay Example
Author : candicedoyle
Finance & Accounting
Pages 4 (1004 words)
[Instructor Name] The Controversial Approach of the Bank of England In the recent financial crisis, the United Kingdom stood among the most affected countries in Europe. Owing to the severity of the crisis, the central bank, i.e…
This report presents a critical overview of the approaches adopted by the Bank for the sake of economic recovery in the country. Considering the devastating effects of the recent financial crisis, the Bank of England considered it essential to improve liquidity position through initiating “liquidity support operations” (Joyce). The intention behind these operations was to facilitate interbank market with more readily available funds. The Bank, in this regard, outstretched its normal operations by way of enabling commercial banks to obtain funds more easily. In addition to these initiatives, the Bank also considered other measures, such as, the introduction of “Special Liquidity Scheme” which enabled banks to exchange their assets with T-bills, which otherwise could not be materialized on short notice. This facility later was referred to as the “Discount Window Facility” (Joyce). However, these policies were brought into action after the Bank loosened the monetary policy by way of lowering down interest rates significantly. Although, the purchase of public and private assets was termed as a policy measure by the Bank, but in fact, these actions were forced to be taken by the Bank since the earlier loosening of monetary policy came out to be ineffective in achieving the 2 percent rate of inflation (Joyce, Tong and Woods). ...