The Bank of England is responsible for the overall stability of the banking system, which involves the stability of the monetary system, macro-prudential regulation of the financial system as a whole, and micro-prudential supervision of banks and other deposit-taking institutions.

On 22 September 2022, the Bank of England raised rates by 0.5 percentage points to 2.25% - the highest level for 14 years. It was the seventh consecutive time since December 2021 in an effort to tackle rising inflation. The Bank stated that it will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term. However, less than a week after increasing the Bank rate, the Bank of England announced that it would carry out temporary purchases of long-dated UK government bonds from 28 September 2022 to restore orderly market conditions after the government's tax- cutting plans sparked financial turmoil. The purchases would be conducted on whatever scale is necessary to effect this outcome

Questions:

1. Critically discuss the rationale of financial regulation.

2. Critically discuss the arguments for and against central bank independence. Include the independence of the Bank of England in your discussion where appropriate.