Former MPC rate-setter Posen in attack on 'autocratic' Sir Mervyn

 

Former Bank of England rate-setter Adam Posen hit out at the autocratic style of Sir Mervyn King today in an outspoken attack on Threadneedle Street's deferential culture.

Mr Posen, who served on the monetary policy committee until last September, said the supervision of the Governor and other executives by the Bank of England's court was "very lax".

He told MPs: "There was a very strong culture that if the governor and/or the broader bank executive made a decision and dug in their heels, there was no point in challenging them.

"That was the widespread belief of the court, of many staff in the bank and some external members of the MPC."

The comments – the strongest criticism so far from a recent MPC member – follow a trio of independent reports over the Bank's governance last year.

One by former JPMorgan joint chief executive Bill Winter warned employees had a tendency "to filter recommendations in such a way as to maximise the likelihood that senior staff will find the recommendation palatable".

Mr Posen also clashed with Sir Mervyn over the introduction of the Funding for Lending Scheme last year, which was kept secret from the MPC's external members, prompting a letter of protest.

He also warned that Sir Mervyn's successor, Canadian Mark Carney, risked having too much power when the Bank takes over the responsibility for supervising the financial sector in April through the new Prudential Regulation Authority.

"If it were up to me I would have written the statute differently... because I frankly believe it goes too far. The governor of the Bank of England would be the most powerful single central banker in a major central bank," he added.

Sir Mervyn backed a review of the Bank's inflation targeting regime in a Belfast speech last night, potentially paving the way for Mr Carney to make changes.

The Governor said a "gentle recovery" was under way but added that restoring the health of the UK's banks and supply-side reforms to the economy to encourage investment were also needed.

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