BIS central bankers’ speeches  1  The Bank’s two main liabilities are banknotes in circulation (currently around £ and the reserve balances held by commercial banks.4 You can think of these balances as the commercial banks’ current accounts with the Bank of England. Together with banknotes, reserves balances are the most liquid, risk-free asset in the economy. The aggregate balance on reserves accounts stood at around £ before the start of the asset purchase programme in March 2009 and the current total stands at around £ The asset side of the balance sheet mainly comprises the Bank’s lending to commercial banks (via both short and long-term OMOs) and latterly to the Asset Purchase Facility (APF). The Sterling Monetary Framework: setting interest rates The Bank’s operations are designed to support both monetary and financial stability objectives. Together they make up the Sterling Monetary Framework (SMF) which is outlined in a document known as the “Red Book”5. In normal times, the SMF operates a system known as “reserves averaging”. Under that system, commercial banks are required to hold an average level of reserves over the “maintenance period” running between one MPC decision and the next. Until the start of the financial crisis, similar reserves averaging mechanisms were employed at the US Federal Reserve, the European Central Bank and the Bank of Japan. But uniquely in the UK system, the target level of reserves for each bank is chosen by the individual firm.
This illustrates the importance of further reforms. 1/1  BIS central bankers' speeches