ICAEW chart of the week – Bank of England

On Thursday, the Chancellor Philip Hammond announced a £1.2bn capital injection into the Bank of England, which prompted us to take a look at its balance sheet.

As our chart this week shows, the Bank of England has equity of £4bn. This supports assets of £606bn, including £445bn in quantitative easing investments (principally government securities) and £127bn in Term Funding Scheme (TFS) loans to banks and building societies that are used to provide low cost finance to businesses and individuals.

The injection will increase the Bank of England’s capital from £2.3bn to £3.5bn (not all of the Bank’s equity counts as capital for this purpose). In turn the Treasury will no longer guarantee each TFS loan.

Initially these internal changes won’t alter the risk profile of the overall public finances. But, this will allow the Bank to take on more risk in the future, without needing to ask for permission first.

Fortunately, Treasury is still committed to recapitalising the Bank if it ever gets into trouble, ensuring that a deposit with the Bank the England remains, well, ‘as safe as the Bank of England’.

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