United Kingdom banking law

Its current constitution, and guarantees of a degree of operational independence from government, is found in the Bank of England Act 1998.

Borrowing money on credit (and repaying the debt[6] later) is important for people expand a business, invest in a new enterprise, or purchase valuable assets more quickly than by saving.

If all banks together lend more money, this means enterprises will do more, potentially employ more people, and if business ventures are productive in the long run, society's prosperity will increase.

[9] The Governor may serve for a maximum of 8 years, deputy governors for a maximum of 10 years,[10] but they may be removed only if they acquire a political position, work for the bank, are absent for over 3 months, become bankrupt, or "is unable or unfit to discharge his functions as a member".

"[13] Under section 12, the Treasury issues its interpretation of "price stability" and "economic policy" each year, together with an inflation target.

[19] This should ensure that changes to monetary policy are undertaken neutrally, and artificial booms are not manufactured before an election.

[21] Bank directors largely set their own pay, delegating the task to a remuneration committee of the board.

[22] Most shareholders are asset managers, exercising votes with other people's money that comes through pensions, life insurance or mutual funds, who are meant to engage with boards,[23] but have few explicit channels to represent the ultimate investors.

[24] Asset managers rarely sue for breach of directors' duties (for negligence or conflicts of interest), through derivative claims.

Since the Credit Institutions Directive 2013,[26] there are some added governance requirements beyond the general framework: for example, duties of directors must be clearly defined, and there should be a policy on board diversity to ensure gender and ethnic balance.

[27] Under the Financial Services and Markets Act 2000 section 19 there is a "general prohibition" on performing a "regulated activity", including accepting deposits from the public, without authority.

[32] Because insolvent banks do not enable customers to recover their money as a property right (only contract), governments have found it necessary to publicly guarantee depositors' savings.

This follows the model, started in the Great Depression,[33] the US set up the Federal Deposit Insurance Corporation, to prevent bank runs.

This system began with the Banking (Special Provisions) Act 2008, emergency legislation for the nationalisation of Northern Rock, which was recast the following year.