Treasury select committee member Chuka Umunna says Bank of England governor Mervyn King has the BoE’s court of directors “under his thumb”.Last week, the select committee heard evidence from the court as part of its inquiry into accountability at the bank.
The court’s responsibilities include determining the bank’s objectives and strategy, ensuring the effective discharge of the bank’s functions, ensuring the most efficient use of the bank’s resources and to review the bank’s strategy in relation to the financial stability objective.
Giving evidence at the session were court chairman Sir David Lees and court members Sir Roger Carr, Lady Rice and Brendan Barber.
Speaking to Money Marketing, Labour MP Umunna says he was “distinctly unimpressed” with the court representatives’ performance.
He says: “There is confusion about whom the executive committees of the bank are accountable to. They take their accountability to Parliament very seriously but one did not get the sense the court was viewed in the same serious context.
“Mervyn must be loving this. In some senses, the impression I was given is he has got them under his thumb and that should not be the way it operates.”
Under the Treasury’s plans for regulatory reform, the court will be responsible for holding the Financial Policy Committee to account for its role in delivering systemic financial stability by setting macro-prudential policy.
The FPC is proposed to have a “comply or explain” power over the Financial Conduct Authority and the Prudential Regulation Authority, as well as macro-prudential tools that could include the ability to set loan-to-value ratios.
The TSC raised concerns in the session about the court’s role during the run on Northern Rock, the fact that Lees did not consult monetary policy committee external member Adam Posen about his public criticism of an “excessively political” statement in a bank inflation report and the ability of the court to take action against the governor.
During the evidence session, court chairman Sir David Lees was accused of not being on top of what the bank spent on its functions.
TSC chair Andrew Tyrie asked the court to release all its documentation covering its activities during the financial crisis. Tyrie said they would be used to judge the court’s effectiveness during what he called the “most colossal failure of bank policy”.
Umunna says the court displayed a “fairly hands-off” approach during the session and he was especially concerned when Lees told the committee he could not recall a widely reported speech given by governor Mervyn King in January.
In it, King said the “credible” path of fiscal consolidation means the UK is well placed to return to growth in the next few years, adding: “The right course has been set, it is important to maintain it.”
Umunna says: “Speeches by MPC members or the governor can move markets and here you have a non-executive director saying: ’Oh well, lots of people make speeches in the bank and you cannot keep tabs on everything.’ Well, that is his job.”
In what Umunna calls an “extraordinary” committee session in November, MPC external member Adam Posen questioned whether King should involve himself in political matters, specifically criticising a paragraph in the May inflation report calling for “a more demanding” path of fiscal consolidation.
Court member Roger Carr told the committee last week the political independence of the bank was of “paramount importance” but Lees admitted he had seen Posen since the hearing and did not question him about his criticism.
Umunna says: “When I asked why he did not raise this with Posen, he said: ’Because he had not raised it with me’. I asked, does that mean on every important issue you expect the MPC to initiate a conversation? Should you not be actively raising that with him?
“He did not seem to have any response to that, so we were not terribly impressed.”
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