The Bank of England, operational independence and the financial crisis

Abstract

The Bank of England played a key role in the management of the 2007–2008 financial crisis, a decade after being granted independence, and has since become an increasingly powerful monetary and financial actor. However, most accounts of the financial crisis in the UK have tended to approach the management of the crisis in terms of unified state action. This paper argues that this approach is limited as it ignores how the conflicts and tension between the now independent Bank of England and the British government shaped the response to the crisis. It is argued that we need to have a clearer understanding of how states and central banks interrelate in order to understand both the management of the crisis and the implications of the emerging monetary and financial order. Specifically it is argued that central banks and other state agencies engage with finance differently and face different problems in doing so and thus develop potentially conflicting strategies. Central banks, as distinct from other state agencies, should be perceived as key structural actors in order to understand the development of the crisis and the implications of the post-crisis regime.