Governance at the Bank of England must be strengthened to reflect its new powers, MPs on the Commons Treasury Committee have demanded in a report published today.
The Chair of the committee, Andrew Tyrie MP, said:
"The Bank of England will play an even more vital role in preventing future crises, yet aspects of its governance appear antiquated. The radical shakeup of financial regulation proposed by the Government provides the opportunity to do something about it."
The Court of the Bank of England should be transformed into a smaller, more expert Supervisory Board with its own staff. It should decide on the allocation of resources among the Bank's different areas of work and its minutes should be published. The Supervisory Board should have the power to conduct and publish retrospective reviews of Bank policies and conduct, the report concludes.
The Supervisory Board should also have a statutory responsibility to respond to reasonable requests for information from Parliament.
Andrew Tyrie MP said:
"Scrutiny of the Bank should reflect the needs of 21st century democracy. That means clear lines of accountability, and more information made available to Parliament. It should also be crystal clear who is in charge at a time of financial crisis. On all these issues the Government’s draft legislation would benefit from improvement."
The Chancellor should be responsible and accountable in a period of financial turbulence where public money is at risk, according to MPs. In these circumstances the Chancellor should be given a temporary and limited power to direct the Bank. The committee has proposed a means by which this can be achieved without requiring the use of the 'nuclear weapon' of the 1946 Act, which would undermine Bank of England independence across the board.
Andrew Tyrie MP added:
"The Governor should be free of Government interference in the day-to-day running of the Bank but, in a crisis, lines of accountability must be much sharper. The Chancellor should have a specific power of direction when public money is at risk. This will place the Chancellor firmly in charge during a crisis and accountable to Parliament for decisions."
The report also recommends that:
- The Governor of the Bank should be appointed for a single, non-renewable term of 8 years. And his or her appointment and dismissal should be subject to a statutory veto by the Treasury Select Committee. The report also argues that the Financial Policy Committee (FPC) and the Monetary Policy Committee (MPC) should have a majority of external members
- There will need to be thorough parliamentary scrutiny of the new macro-prudential tools to be given to the FPC at the time of their introduction. The orders in which they are set out should be provided to the Treasury Committee for comment two months before they are laid before Parliament. They should normally be debated on the floor of the House without a 90 day time limit.
- The Treasury should give guidance to the FPC that it adopt published indicators for defining and gauging financial stability. These should be updated at regular intervals
- The Governor should have a duty to raise any conflicts between the decisions of the MPC and FPC with the Chair of the new Supervisory Board
- The Chairman or another member of the Supervisory Board should be an observer at meetings of the MPC and FPC. The Board should also ensure that external members of the Committees are not constrained by 'groupthink' and feel free to express their views.
- The Bank must ensure that it does not deter suitable candidates from joining the Monetary Policy Committee and the Financial Policy Committee by over-rigid rules on conflicts of interest: possible conflicts should be dealt with on a case by case basis, drawing on best practice on major public company boards