The chair of the Commons Treasury Committee today launches an excoriating attack on the governance of the Bank of England during the global financial crisis.
Andrew Tyrie says the Bank did not have a governing board “worthy of the name” during the financial emergency. Citing the evidence contained in minutes of meetings of the Bank of England’s ruling Court between 2007 and 2009, which are released today, Mr Tyrie says the Court acted like a “cheerleader” for the views of the Threadneedle Street executive, rather than providing any “constructive challenge”. He also says the record shows that the Court was “almost entirely reactive” during the crisis.
“These minutes make the clearest possible case for radical reform of the Bank’s governance and the need to address the manifest inadequacies of the archaic approach upon which the Bank were relying during the crisis” he argues.
The Treasury Select Committee fought a prolonged battle with the Bank of England over its governance, with the former Governor, Lord King, doggedly opposing the committee’s overhaul proposals.
However, the new Governor, Mark Carney, has been more accommodating. He ordered the release of the Court minutes, as requested by the committee for four years, last month. “Publication of these minutes represents a major development in the way Parliament scrutinises this super-quango” according to Mr Tyrie, who also chaired the Parliamentary Commission on Banking Standards,.
There have been a number of reforms to Court since the financial crisis, with the number of non-executive directors reduced and the appointment of a non-executive chairman. The 2012 Financial Services Act created an oversight committee to monitor the performance of the Bank and its policy committee.
The minutes are likely to prove embarrassing for former members of the Court. The run on Northern Rock in September 2007 is widely seen as having been mishandled by the Bank and Lord King has been severely criticised for insisting at the time on the need to avoid the “moral hazard” of providing liquidity to struggling banks too cheaply. But on 12 September 2007, shortly before the Northern Rock run, the minutes relate that “several Directors [of the Court] congratulated the Governor for setting out a rigorous intellectual underpinning of his position. The view was that it would be helpful for the market and for commentators and would lead to rather more informed comment.”
Mr Tyrie also says that the minutes reflect badly on the executive of the Bank, saying that it “appears to have been a very hierarchical organisation, with clear signs of ‘groupthink’ among its leadership”. He goes on: “The executive rarely acknowledged possible weaknesses in its views or, other than grudgingly, admitted that it might have been unprepared for the crisis”.Reuse content