View from City Road: Remedying the Bank's lack of accountability

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The Bank of England escaped extraordinarily lightly from the scandalous collapse of the Bank of Credit and Commerce International. The nearest to a head rolling was the early retirement of a senior supervision department official months later, to a chorus of denials that this was anything to do with BCCI.

One reason for this apparent lack of accountability is the way responsibility for banking supervision and monetary policy both reside in the person of the Governor. It is hard to discipline the Government's most important monetary official for failings in one of his peripheral activities.

There has always been a strong prima facie case for separating the two functions so the supervisors can be independently accountable to the Treasury and Parliament. BCCI strengthened it further.

A paper today by one of that growing band of City think-tanks, the Centre for the Study of Financial Innovation, argues that breaking up the Bank of England is also necessary because of rapid changes in the way financial markets work. These have blurred the distinctions between building societies, banks, securities firms and insurance companies. The CSFI is headed by Sir Kit McMahon, former deputy governor of the Bank and former chairman of Midland Bank.

Ignore the fact that Sir Kit might have an axe to grind because his old employers at the Bank forced him out of Midland. Breaking up the Bank, merging its supervision department with the Building Societies Commission as a free-standing regulator, makes sense. There is also the germ of a good idea in the suggestion of a Parliamentary commission to which the regulators would be accountable.

There are some drawbacks, however. It is suggested that the Securities and Investments Board should be absorbed in this new regulatory conglomerate but this would plainly make it too cumbersome to manage.