Proposals from the Bank of England to boost its accountability have been dismissed by the Treasury select committee.
In its report into the accountability of the Bank in the new regulatory structure, the TSC called for its Court to be replaced with a supervisory board. But in written evidence submitted to the committee last week, the Bank proposed an oversight committee be set up under the Court instead.
TSC chair Andrew Tyrie says the move shows the Bank has accepted there is an accountability deficit in the new set up but he says its proposed solution does not fill the gap.
The TSC’s official response to the proposal says: “Parliament’s practical ability to hold the Bank to account will rest, to a substantial degree, on the extent to which the Court develops into a proper board, with adequate scrutiny and review powers. The Court lacks much of what is required and the oversight committee does not plug that gap.”
Tyrie says: “Accepting the shortcomings in the accountability arrangements is a huge step forward. Unfortunately the Ban’s proposal is not. It falls well short of what is required. The Bank needs a proper board that is fit for the 21st Century. A lot is at stake. The Bank’s authority can be greatly enhanced if we get this right.”
The Treasury is expected to publish the financial services bill setting out the new ’twin peak’ regulatory structure at the end of January.
The Bank’s proposed oversight committee would be staffed by non-executives and would be able to commission external reviews into decisions but the TSC says it would not be able to comment on them or undertake internal reviews. Tyrie says internal, retrospective reviews by a proper board would improve policy performance and would bring it in line with modern institutions which assess their own performance.
Tyrie adds: “The Bank has still not properly reviewed its own role in the financial crisis. The Court’s proposals would not permit the sort of review the FSA has recently conducted into RBS. The public and parliament can and must secure the higher level of scrutiny – for the decisions that affect our lives – which they demand.”
The committee also criticises the Banks rejection of calls for the Chancellor to take control of Bank policy when “material risk to public funds is a possibility”. Current proposals would see the Chancellor’s power of direction kick in when public funds are called on. The committee wants whatever final arrangement is put in place enshrined in law while the the Bank wants it set out in a memorandum of understanding.