Where does their funding come from?
Some of their funding comes from printing banknotes. While they only spend a few pence to print each note, banks buy them from Bank of England at their face value: £5, £10, £20 or £50. They invest this money in financial assets like government debt, which pays interest and so generates an income.
Banks and building societies also fund their work to set interest rates and protect the financial system. They require that they place an interest-free deposit with them. Just like printing banknotes, they earn an income by investing the deposits in financial assets that pay interest.
Banks, building societies and insurance companies also pay them a fee to cover the cost of regulating their activities. So do financial market infrastructure firms like Visa and Bacs.
They also receive income from the financial assets they have bought over our 325-year history.
What do they do with their profits?
All of the profits they make from printing banknotes are passed back to HM Treasury. Over the past five years that has averaged a little over £400 million each year.
What they do with the rest of our profits depends on how much financial resources (called capital) they have.
They need capital to use as a buffer to absorb losses. For example if a bank fails to pay them back or if something we own decreases in value. Similarly, you might have a savings account to rely on if your car breaks down.
If we’re below a target level of capital set with the agreement of the Treasury, they keep all the profits that year and add this to their capital.
If their capital is above target but below a ceiling level, they give half of our profits to the Treasury and add half to their capital. And if their capital is above the ceiling, they give all their profits to the Treasury. They can then spend it on things like roads, schools and hospitals, or use it to reduce taxes.
Over the past five years, the profit from their activities other than printing banknotes has averaged a little over £75 million each year.
So combined with the profit they make from printing banknotes each year they give around £500 million back to the public through HM Treasury.