Bank of England makes £1bn profit from bailouts after riding to rescue of high street lenders
During a crisis that has brought some of the mightiest forces in global banking to their knees — and some to collapse and oblivion — the Bank emerged as having thrived while famed commercial institutions foundered.
Figures released yesterday in the Bank’s annual report showed that in the 12 months to February 28 it raked in profits before tax of £995 million. This marks a more than fivefold rise from £197 million in 2008 and is the biggest figure since its establishment in 1694.
The profits surge for the Old Lady of Threadneedle Street has already paid a big dividend for taxpayers. The Bank made an initial payment to the Treasury of £203 million on April 3 and a further, similar sum is set to follow in October under rules that require the Bank to hand back a quarter of its post-tax profits to the Government on two dates each year.
The Bank’s soaring profits have come as a direct result of its massive interventions to shore up Britain’s banking system, as it has levied fees and interest on stricken high-street and commercial banks in return for the financial lifelines that have seen them through the financial storm.
“The Bank’s profit is a consequence of policy decisions to tackle the financial crisis,” a spokesman said last night after its report was handed to Parliament.
“The Bank has provided substantial liquidity support to the banking system. It is entirely right it charges fees to set the right incentives for financial institutions to use its facilities and protects itself and taxpayers from potential credit risk.”
Yesterday’s report showed that included in the year’s bumper profits for the Bank were £7 million earned through its support for the collapsed Bradford & Bingley and a further £4 million from its backing for the failed Northern Rock. The Bank has also earned large amounts from the £185 billion loaned to banking groups in the form of Treasury bills, under its Special Liquidity Scheme (SLS). In the year to February 28, it booked £664 million in profits related to the SLS, according to its accounts. As security for its loaned funds, the Bank continues to hold £287 billion-worth of hard-to-trade, illiquid assets that it swapped under the scheme.
Mervyn King, the Bank’s Governor, joined Sir John Parker, chairman of its Court, in using the annual report to renew calls for extra powers for the Bank to help to prevent future crises. Mr King said that he welcomed the extra statutory role given to the Bank to ensure financial stability, but added: “I regret that the new responsibility has not been accompanied by any new powers to deal with banks before they fail. Responsibilities and powers need to be aligned.”
Counterfeiters cash in
The proportion of banknotes found to be counterfeit has more than doubled in a year, the result of three “major criminal gangs” pumping fake notes into the economy, the Bank of England said.
It revealed that it took 686,000 fake notes worth £14 million out of circulation last year. Of these, 88 per cent were discovered during automated sorting.
This meant that 0.0057 per cent of machine-sorted notes were found to be counterfeit, up from 0.0026 per cent in 2007.
During last year, police “successfully stopped one of the major sources”, the Bank reported, while a number of smaller counterfeit operations were also closed down.