BoE could be too powerful, warns Tyrie
THE government’s decision to give sweeping new powers to the Bank of England (BoE) could create an “overmighty” institution with conflicting monetary and financial stability aims, according to the head of an influential parliamentary committee.
Andrew Tyrie, who became the Treasury Select Committee’s first elected chairman in June, said the previous regulatory structure – which carved up responsibility between the Treasury, the central bank and the Financial Services Authority – had been flawed.
But the Conservative lawmaker said there were also risks with rushing head-long into a new framework, especially one that handed so much power to one institution.
Under the government’s proposals, the governor of the Bank of England will head both the Monetary Policy Committee (MPC), charged with setting interest rates, and the Financial Policy Committee (FPC), charged with looking at broader issues that could threaten financial stability.
“There’s always the possibility that there will come a time when the FPC will want to loosen policy while the MPC is wanting to tighten it, or vice versa,” Tyrie told Reuters.
The government intends the transition to the new regulatory framework to be completed in 2012 and is currently consulting on the details.
“There is a risk we could create an overmighty BoE, a sort of super-quango,” he said echoing fears that the rushed overhaul will create problems.
One issue Tyrie feels needs more elucidation is the role the chancellor will play in any future financial crisis.
The draft framework suggests the chancellor would have ultimate responsibility when taxpayers’ money was at risk but Tyrie said he was not fully satisfied with how this would work in practice.