Speaking at a rare press conference in the Bank yesterday, Mr George put a brave face on the latest attempt by the new Government to modernise the running of the economy. He attempted to play down the lack of consultation with the Treasury but admitted he had thought about quitting after the removal of another of the Bank's key functions.
The removal of the Bank's regulatory powers has been seen as a rebuke from the Government for its perceived failure to prevent the collapse of BCCI and Barings.
Mr George warned against reading too much into the lack of consultation, saying the Chancellor was aware of the Bank's views on the subject. But he added: "All sorts of things go through your mind at times like this."
The Governor made it clear he was unhappy with the speed with which the announcement had been made, only two weeks after the Treasury had also taken over the Bank's 300-year-old responsibility for managing the Government's debt through its oversight of the gilts market. He said: "The surprise was in the timing. We wouldn't have made the changes at this time."
The Chancellor caught the City on the hop on Tuesday with the announcement of wholesale changes to the system of financial regulation that governs the behaviour of banks, securities houses and insurance companies. The main planks of his proposed changes were the creation of a single super- regulator, headed by Howard Davies, currently deputy governor of the Bank of England, and the transfer of banking supervision from the Bank.
Stripped of one of its core functions, the Bank's responsibilities now focus on monetary stability, where its role was boosted by the announcement two weeks ago that it would be free to set interest rates, and the overall stability of the financial system.
Mr George cautioned yesterday that the super-SIB must be careful to avoid becoming a "bureaucratic monolith". He said: "It is enormously important that different types of financial service activity are regulated in different ways. I am confident that Howard Davies is totally sensitised to the need to maintain a balance between innovatory vigour on one hand and protection of smaller, less- sophisticated investors and savers on the other."
But he dismissed the suggestion that two regulators should have been set up to separate the supervision of retail and wholesale financial services: "That distinction is easy to say but difficult to draw."
One of the crucial areas going forward, according to Mr George, would be making the relationship between the new single regulator and the Bank work effectively. One possible fault line in the proposed system was the Bank's ability to ensure financial stability without the information it had gleaned up to now from its role as regulator.
A large part of the running of the new SIB's supervision of the banking sector is likely to fall on some of the 425 staff who work on regulation at the Bank. Despite the transfer of many of the jobs to the new regulator, the finance union, Bifu, expressed concern yesterday about the proposed changes.
"The Bank have known for a fortnight that changes in banking supervision were coming yet they failed to alert their own staff and their union," said Ed Sweeney, Bifu general secretary.
Another 80 staff in the Bank's markets operations division are already facing uncertainty over their futures after Mr Brown's decision to transfer debt management to the Treasury.
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