View from City Road: The Bank's strategy worked, this time

The Bank of England victory against the owners of Mount Banking Corporation could prove a double-edged sword for banking supervisors. The decision has clarified for the first time a key passage in the Banking Act in a way that substantially broadens the basis of appeals against the supervisors' decisions. This may well encourage other aggrieved owners of banks to have a go at the Bank of England.

The Bank argued before the tribunal that the function of the hearing was to consider whether the Bank was reasonable in reaching the decision it did, given the evidence before it. This would be a narrow approach, similar to judicial review.

No, said the tribunal. It was entitled to give the 'policies and approach' of the Bank considerable weight. But its job was also to form its own objective views about whether the decision itself was right. In other words, it can look at all the evidence and not just at whether the Bank carried out its regulatory job properly.

The Bank has acted against the owners and managers of many other banks, and not always in the glare of publicity, since they are not all closed down. But aggrieved bankers may henceforth be tempted to fight if they know they can reopen the entire case.

That will make it doubly important that the Bank has its facts right before it starts. One of the grounds for investigating Mount was a suspicion of money laundering and other 'serious improprieties', but the Bank did not put any evidence of this before the tribunal, a strategy that would have left a lot of egg on the Governor's face if other grounds for closure had not been found.

The only justification for what was basically a fishing expedition is that Lord Justice Bingham's report on BCCI castigated the Bank for being too timid in launching investigations.