MPs: Bank of England needs radical reforms

Julian Harris
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MPs WILL today ramp up their push for greater scrutiny of the Bank of England by publishing a stinging critique of the Bank’s own suggestions for reform.

The Treasury Select Committee (TSC) says the Bank needs a powerful supervisory board and should hand over more influence to the chancellor in the run up to a potential financial crisis.

In a response to the Bank’s proposals, the Committee says they fall “well short of what is required.”

“A lot is at stake,” commented Conservative MP Andrew Tyrie, chairman of the TSC. “The Bank’s authority can be greatly enhanced if we get this right.

“It is understandable that people don’t rush to embrace more meaningful and intrusive supervision of their activities,” Tyrie added. “But in a public body with these powers, it is essential.”

Tyrie and fellow MPs jousted with Bank governor Sir Mervyn King in Westminster last week, after King accused politicians of wanting “another group of unelected officials... to second guess the decisions of the first group”.

Liberal Democrat MP John Thurso mocked the Bank’s proposal for a watered down oversight committee, describing it as “a committee [to] determine whether all the wrong decisions have been taken correctly”.

The TSC charges the Bank with escaping scrutiny over its decisions in the build up to the financial crisis, while regulators and banks have been investigated.

“The Bank has still not properly reviewed its own role in the financial crisis,” Tryie said. “The [Bank of England] Court’s proposals would not permit the sort of review that the Financial Services Authority has recently conducted into RBS.”

Tyrie added: “All modern institutions review their own performance. In that respect a reformed Bank of England should be no different.”

The TSC wants a supervisory board to have the “duty and authority” to investigate the Bank’s decisions and offer retrospective judgement.

A majority of supervising members should be external to the Bank, to avoid “groupthink”, the TSC’s report suggests.

The Bank has conceded that the chancellor’s powers should be enhanced when there is both “a material risk to public funds” and a serious threat to financial stability. Yet the TSC wishes the chancellor to adopt the extra powers as soon as the first criterion is met.

Conservative MP Sajid Javid told City A.M. that the stand-off between the Bank and MPs is not necessarily bad for the UK. “At such an important time as this it’s healthy to have a debate between what the TSC thinks and what the Bank thinks,” said Javid, who previously worked in the City’s financial markets.