Parliament demands sweeping changes to Bank of England
Tuesday, 08 November 2011 09:30
The Bank of England requires a “radical overhaul”, according to a new report published today by a Treasury Select Committee.
To go with the new powers that the bank is set to receive, the Bank of England’s governance needs to be strengthened.
The Chairman 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 report suggests that the Governor of the Bank of England, Sir Mervyn King has too much power and that checks and balances are required to ensure that the governance and accountability of the Bank is at the level it should be.
The report wants to see a smaller version of the existing court of directors with an independent board of staff to monitor the effectiveness of the Bank of England. The board would be expected to report to parliament, negotiate between separate parts of the bank and conduct policy reviews.
The report recommends that a supervisory board is set up to review policy and check on the bank’s interest rate and banking regulation decisions. The report also calls for the Chancellor to be given a statutory responsibility to take control of decisions when taxpayer funds are at stake.
Finally, the report says that parliament should have more control over the appointment and dismissal of the governor. It recommends that the governor should just have one single term of eight years and that parliament should have a veto on their appointment.
The governor of the Bank of England, Sir Mervyn King issued a statement ahead of the publication of the report and said: “The Bank has always made clear that with the expansion of its responsibilities new arrangements for the governance and accountability of the bank would be necessary.”
It would appear that the Treasury are trying to rearrange the dynamics of the decision-making at the Bank of England, so that there is more than just one person, the governor, who takes most of the decisions as they believe the directors around the governor do not provide rigorous governance over the banks decisions.
Last month, the former Labour Chancellor, Alistair Darling, described the governor’s position as like the “Sun King around whom the court revolves.”
When the Labour Party won the election in 1997 it decided to grant the Bank of England independence to set interest rates, though it retains control of the inflation target, currently at two per cent.
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