But since the construction spree of the 1980s, the Bank can no longer confidently claim to be the most opulent building in the Square Mile. And no longer does the City cluster tightly around the Bank intersection. These changes are symbolic of a decline in the Bank's once unquestioned pre-eminence. It is an old-fashioned institution, seen as outmoded in the City it champions and badly scarred recently by criticism of its handling of the collapse of the Bank of Credit and Commerce International.
Inside Britain's most secure building, there has been an awareness for some time of the need to modernise the organisation.
The new Governor-designate, Eddie George, is also intensely aware that the Bank must sharpen up its act. Both he and Rupert Pennant-Rea, the new deputy Governor-designate, are in favour of the Bank becoming independent of the Treasury. But they know this is impossible until the Bank can prove beyond doubt that it is up to the job. The changes introduced so far, moreover, have made little impression outside.
Tradition still weighs heavily on the Bank, even in the fabric of its building, where change has been so discreet as to be almost invisible. Much of the structure is listed and subject to the authority of English Heritage. The areas visitors see, including the senior executive offices, represent the Platonic ideal of an English gentlemen's club. They are elegantly furnished with expensive antiques and manned by more pink-coated flunkeys, who escort strangers and serve tea in fine china cups. The larger meeting-rooms are decorated with gilt, acres of wood panelling and large oil paintings of City patriarchs.
This elegance has its price. For example, it has been difficult to incorporate information technology. Cables cannot be run under the floors; terminals have to stand on reproduction antique computer tables; banks of video screens that monitor the markets are encased in fine wood surrounds. Nor does English Heritage approve of fitted bookshelves.
There are other irritations involved in maintaining the Bank's mystique. For security reasons, no floor plan exists. Each of the 11 levels has a different geography and there are few signs. It is alarmingly easy to get lost in the maze of echoing, stone-floored corridors. While this makes it virtually impossible for a stranger to find the vaults, it can take newcomers a month to find their way around.
The Bank's caution about the physical security of Britain's gold reserves is matched by its determination to guard the integrity of sterling. The Bank redesigns notes about every 15 years, and prints the money at its ultra-secure works in Essex. But there is a tinge of fanaticism about its concern to prevent counterfeiting. It is, of course, illegal to reproduce banknotes without permission. But even advertisers and newspapers who simply print a photograph of someone holding a wad of cash are almost certain to get a reprimanding letter. In 1987, the Bank brought a case against the American artist J S G Boggs, who painted larger-than-life banknotes on canvas and signed them with his own name. The Bank lost.
For all its self-importance and yearning for independence, the Bank of England has to submit to the authority of the Treasury. Large chunks of its operations derive from its role as the Government's banker. As well as handling the flow of government money, the Bank implements the monetary policy decided by the Chancellor. This involves dealing in the money markets to influence interest rates, and foreign-exchange intervention to influence the level of the pound. The Bank issues gilt-edged stocks to fund the Government's borrowing and supervises the gilts market. It also manages the foreign exchange reserves to get the best possible return.
Relations with the Treasury are necessarily close but marked by mutual hostility. One Bank official says: 'The Treasury thinks very highly of itself. They go in for a lot of point-scoring.'
A senior Treasury official says of the Bank: 'It needs a bomb planting under it.'
The hostility is not surprising when officials from two arrogant institutions, each side sure of its own superiority, have to deal with one another daily. Bank employees get more pay for less work. Treasury officials ultimately call the policy shots.
Relations deteriorated during the early 1980s, when Conservative ministers felt the Bank was unsympathetic to monetarism. Nigel Lawson wrote of the Bank in his memoirs: 'While it regarded monetary policy as very much part of its own bailiwick, not to be usurped, it believed in it far less than the new Government did.'
If anything, the Bank of England is the stronger believer in monetary policy now and would welcome independence if offered it. The Bank mission statement declares its first aim to be maintaining the value of the nation's money. But it has other objectives: ensuring the soundness of the financial system and promoting the efficiency and competitiveness of the City. The Treasury is the Bank's first constituency, the City its second.
Wedged between these two powerful interests, the Bank is neither fish nor fowl. It is not a government department with the same working methods, career or salary structure as, say, the Treasury. Nor is it a commercial organisation. In comparison with the large segment of the City forced to adapt to a new world of fast-paced, aggressive financial markets, the Bank seems something of an anachronism. Decisions are taken slowly. Memos filter up the chain of command, but little response trickles back down. Officials do not rush along corridors on urgent tasks. The atmosphere is subdued and stately.
Insiders prefer to describe the organisation as gentlemanly or polite. To outsiders it seems simply stuffy. While many civil servants in Whitehall and investment bankers in the City have taken to calling each other by first names, Bank employees generally do not take such liberties with their seniors. The trappings of hierarchy are everywhere. There are two canteens: one reserved for middle and high-ranking officials; the second, over the road, for the other nine-tenths of the staff.
'Your status is defined by the size of your office clock,' says a former Bank employee. Senior people have at least half a secretary; the rest of each section shares one secretary.
Under the affable Robin Leigh-Pemberton, the retiring Governor, a new informality penetrated the upper reaches of the Bank. Eddie George, the newly appointed Governor (and former deputy), has a reputation for formality, however - a liking for hierarchy. The culture of deference in the Bank is therefore unlikely to change significantly under the new regime.
What is likely to change is the way the Bank is run. Mr Leigh-Pemberton was one of the most 'hands-off' Governors in living memory. He limited most of his activity to a quasi-ambassadorial role, leaving detailed running of the Bank's operations to Mr George, who, as a result, has been one of the most powerful deputy Governors for years.
Once a week since his appointment in 1990, Mr George has headed a formal meeting of the Bank's directors in his office, at which executive decisions are taken. Mr Leigh-Pemberton rarely attends. Once Mr George, who has spent his career at the Bank, takes over, he is unlikely to relinquish this day-to-day role completely. The power of the new deputy Governor may be downgraded.
The Bank's various activities are grouped into divisions under seven directors. There is an informal pecking order among the divisions, which depends to a large extent on the personalities and standing of the directors.
Banking supervision has, in Brian Quinn, the most senior director. Although once fashionable as a route to promotion, the division has been in the doghouse because of the BCCI scandal. The small markets division, which deals directly with the City in gilts and other financial instruments, has always had status within the Bank. The international division is well respected, too.
Another of the more important, though least sought-after divisions is industrial finance, which monitors bank lending to industry and has been advising banks how to handle problem loans.
The Bank of England roots for the City as a whole, acting as its advocate both with Whitehall and internationally. But the elite markets division is closest to the centre of the Bank's identity and reputation. It prides itself on knowing everything that is going on in financial markets. The dealing-room is like any City equivalent, except smaller and quieter.
The ERM crisis cast a shadow on the Bank's reputation for manipulating the foreign exchange market. Although most participants are sympathetic, believing it was forced to defend the indefensible, others argue that the episode showed it to be too divorced from the market that it is supposed to influence. The argument runs that Bank officials, as bureaucrats, do not really understand what motivates the market. 'They have not inflicted any losses on forex traders,' says one analyst, 'so they are not in control.'
However, the Bank's market operations broadly earn the respect of City counterparts. A gilts trader says: 'They are astute and sophisticated players of financial markets, and as good as anyone in the private sector.'
The Bank of England's relationship with the City is not always easy, however. As the Government's banker and as supervisor, it has an air of superiority, of paternal interest in the City, that earns it some resentment.
'I don't think you'll find many people in the City with a good word to say for them,' mutters a money market trader.
While the Bank is in constant contact with the financial markets and well-informed, some participants find it introverted and secretive. One says: 'We have major clients from the US investing in European bonds who find the right doors at the Bank of England completely closed to them.' A gilts analyst claims that he can get more useful information about official thinking from the Treasury than the Bank.
Bank officials would no doubt find such claims surprising, since they spend enormous amounts of time in meetings and lunches with people from the City. But the preparation of this article itself illuminates the sometimes limited nature of the Bank of England's openness. The press office put a great deal of effort into furnishing information and setting up meetings. At the same time, other Bank employees received a memo warning them not to talk to the Independent on Sunday. The reason is a paternalistic concern not to let slip the wrong kind of information.
Another example of the Bank's hypersensitivity is provided by a BBC camera crew. While filming the Bank's hotline for depositors during the BCCI crisis, the cameraman spotted piles of sandwiches brought in for staff manning the telephones. He started filming them to illustrate the effort that was going on but was asked to stop: focusing on the catering was thought too frivolous.
It is in its role as supervisor of the banking industry that the Bank has faced savage criticism for remoteness and incompetence. There is bound to be tension between the interests of the regulator and the regulated. The Johnson Matthey Bank failure in 1984 was a huge blow to the Bank of England's reputation for omniscience. The scandal resulted in the strengthening of the Bank's statutory powers in the 1987 Banking Act, and in the beefing-up of its supervisory division. This now has 260 people, though total staff numbers have fallen more than 10 per cent during the past decade.
The Bank was next involved in the Blue Arrow affair as the lead supervisor for County NatWest, responsible for the 1987 rights issue that subsequently led to a Department of Trade and Industry investigation and a fraud trial. The inquiries revealed that the Bank of England not only did not have a legal department, it did not think it needed one.
It is only since the publication in October of the Bingham Report into the collapse of BCCI, with its strong criticism of the Bank's supervisory approach, that the Bank has announced the creation of a legal unit and a fraud investigations unit. The heads of these two new sections have been appointed and are recruiting staff.
Every banking supervisor is bound to make mistakes. Nor can the Bank offset adverse publicity by boasting of its successes in saving banks and detecting frauds. So the criticism is a bit unfair. Even so, the Bank seems to have unhappily married incompetence with a reluctance to admit mistakes. One banker says of the banking supervisors: 'One can understand why they got into the mess they did. They are unambitious and not particularly energetic people in a routine job. It is a static bureaucracy.' Another says: 'My impression is that they have never been in the front line.'
Restoring the credibility of the battered surpervision section could turn out to be Mr George's most difficult management task as Governor. He has no personal experience in the division. His public statements suggest he is ambivalent about whether the Bank's supervisory functions should be hived off. Whatever he decides, the solution must be swift and radical. Over the last few years, the Bank has strikingly failed to balance its dual role as both policeman and champion of the banking sector.
Critics of the Bank say that more than just its supervision division is in desperate need of reform. While the rest of the City switched to hard professionalism years ago to survive in a tougher commercial climate, the Bank seems reluctant to let go of the concept of gifted amateurism. City folk complain that Bank officials frequently appear inadequately trained and too inexperienced for the jobs they are doing. Naturally, professionals resent being ruled by amateurs. But there is genuine disquiet in the Square Mile that the Bank is simply not up to some of its responsibilities. Mr George will have to work hard to dispel this impression.
The Bank, in the meantime, offers some of the most pleasant working conditions in the City. It has around 4,500 employees, nearly a thousand of whom are employed at the printworks. The Registrar's Department, which keeps the register of owners of gilts up-to-date, employs 420 in Gloucester.
For the majority in London, the physical surroundings are attractive. Spending on the building has been trimmed over the years, but the Bank is highly profitable (it paid pounds 67.6m to the Treasury last financial year and transferred the same amount to its own reserves). It can afford some comforts.
Each year, the Bank hires around 30 graduates at starting salaries of more than pounds 15,000. About four years into their career, graduates have to pass a two-day assessment for promotion from Bank 'officer' to 'official'. About 400 of the 4,500 staff are officials. Currently their salaries start at slightly more than pounds 24,500. Each grade has an associated basic salary scale, and there are performance-related bonuses - earmarked for perceived high-flyers.
Discussing the rewards of working for the Bank, a City financier remarks: 'They know at every stage of their career what their maximum salary will be. It hardly creates the right incentives.' Indeed, high-flyers can earn far more in the private sector.
Inevitably, there is a steady flow of personnel out of the Bank. The losses, which mainly occur a few years into graduate careers, have been fairly continuous since the late 1970s. The markets division, where contact with the City is closest and salary contrasts starkest, loses around half of each year's intake to the private sector after the first few years. Senior Bank officials are worried about these defections.
Among the staff who remain at the Bank, there is without doubt a strong public service ideal. As in the Civil Service, officials do not specialise for life. They are expected to be generalists, rotating jobs every two to four years. This system may soon have to change.
In the past, the Bank has recruited graduates with all kinds of degrees. It runs a two- year graduate training programme, including an introduction to economics and mathematics for those with degrees in general subjects. That has tended to leave officials with a smattering of knowledge, not enough to make them genuinely effective. A former Bank economist observes: 'You do not notice economics being used in analysis at the Bank, especially in the higher echelons. It makes for an awful lot of basic incompetence.'
The Bank's policy has begun to change. It already sends a few members of staff each year on post-graduate economics or business courses. In future, all new graduate recruits will have to have an economics degree, though outstanding candidates with other qualifications may be hired and packed straight back to university for more appropriate training. This change in recruiting practice should eventually have a profound effect.
The reorganisation of the 65-strong economics division in 1991 has already begun to make economics more central to the Bank as a whole. Research papers are refereed by outside academics and published, to guarantee quality. Respect for the work of the division has been building up for a few years, though a number of outside economists think the Bank must share with the Treasury responsibility for underestimating the severity of the recession.
A prominent City economist who worked at the Treasury until the mid-1980s said: 'In my time at the Treasury, Bank of England economists were a joke. We carried out all the serious monetary and financial analysis; but we did think the Bank had market expertise. That position has now been completely reversed. It is possible that the Bank could become the pre-eminent body for economic policy advice. On the other hand, they seem pretty unworldly about what is happening in the City.'
It is symbolic of this reversal that one of the stars of the banking supervision department, rated highly by the outside world, moved to the economics division to help in its reorganisation. Not before time, the division has become an essential stop on the career path of the Bank's high-flyers.
The economists are placed at centre-stage by the Government's new monetary policy framework, in which the Bank is to publish an inflation report in its Quarterly Bulletin. The first one will be out in February. Senior officials invest this post-ERM policy requirement with a great deal of importance.
For although it is easy to list what the Bank of England does, it is less easy to say what it is for. Outside certain narrowly defined areas, it is not clear what its exact role is. Some of its functions - printing money, banking supervision - could be performed elsewhere. In the end, the Bank's reputation and influence depend on the quality of the work it carries out. As one official observes: 'It is no good putting all the dynamic people in one division. The Bank still needs shaking up from the top.'
Swathed in scaffolding and plastic sheeting, the monumental Bank of England building is being cleaned in preparation for tercentenary celebrations in 1994. But it is Mr George's renovation of the organisation itself - above all the drive for greater professionalism - that really matters. If he is successful, he may just restore the Bank's reputation and authority for another 300 years.-
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