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Author: MPs need new tools to keep policymakers in check

Author Dan Conaghan doubts the Treasury can keep the Bank of England in check under the coming regime

The Government has not been keen to dictate to the bank how it keeps itself in check and calls made by the TSC to abolish the bank’s court of directors in favour of a modern board have been brushed aside.

Conaghan feels there is an “uneasy truce” between the Government and the bank. He says: “King is repeatedly on record as saying the bank is accountable to Parliament, not politicians, and I sense a reluctance from King to submit to individual MPs.”

Former Labour Chancellor Alistair Darling said in his memoirs that King was “stubborn and exasperating”, describing him as a “Sun King”.

King has refused to comply with the TSC’s requests to publish the court’s minutes from meetings held during the financial crisis and Conaghan accuses the bank of having a “selective memory” when asked about its business.

Conaghan writes that King backs his “rock-solid disciple” Charlie Bean to take the reins when his tenure ends next year. Deputy governor for financial stability Paul Tucker is another possibility, as is FSA chairman Lord Turner.

Other names being talked about include former Barclays chief executive John Varley and the “eminently qualified” Independent Commission on Banking chairman Sir John Vickers.

Conaghan says that ex-MPC members have suggested to him the role could go to James Sassoon, co-architect of the new structure, Treasury minister and author of the tripartite review. Conaghan says it was the “thud factor” of Sassoon’s review into the failings of the regulatory system that led to plans to scrap the FSA.

He says: “He provided the credibility for a young and inexperienced team made up of Cameron, Osborne and Osborne’s close aide and then soon to be Conservative MP Matthew Hancock to build the new regulatory structure. Where King had a stubborn streak, Sassoon has been at the Treasury and is more onside.”

In the new regulatory world, the Treasury will be able to direct the bank but only once the Governor decides public funds could be at risk. Having someone at the helm who is “onside” could prove attractive but might raise questions about independence.

Book highlights

  • In a “nod to austerity”, the bank bought governor Mervyn King a senior railcard.
  • Although “thorough”, the Treasury select committee can be “petulant and occasionally dim-witted”. Bank governor Mervyn King “has the measure of them”.
  • Diplomatic cables published by WikiLeaks show Mervyn King expressed “great concern” at David Cameron and George Osborne’s lack of experience before the 2010 election and at their resistance to reaching out beyond a “small group of advisers”.
  • At the height of the crisis in August 2007, King was at the Oval, watching cricket, having left instructions that he was only to be contacted in an emergency. “As the day wore on, the definition of ’an emergency’ became a matter of some debate at the bank.”

Who will replace Sir Mervyn King?

Dan Conaghan says it is down to the next governor to address the “uneasy truce” between the Government and the bank. The names in the frame include:

  • Deputy governor for financial stability since March 2009, Paul Tucker sits on the Monetary and Financial Policy Committees, as well as being involved in the Financial Stability Board and the Basel Committee. He has a background in merchant banking but has been at the bank since 1980.
  • Lord Sassoon has been Treasury commercial secretary since the election in 2010 and has responsibility for the Debt Management Office, which sells gilts. He wrote the tripartite review and was a driving force behind the break-up of the FSA.
  • Chief executive of Barclays until 2011, John Varley spent nearly 30 years working his way up the bank’s hierarchy after joining the corporate finance department in 1982.
  • FSA chairman since September 2008, Lord Turner chaired the Pensions Commission and has been a non-executive director at Standard Chartered and vice-chairman of Merrill Lynch Europe.
  • Deputy governor for monetary policy since July 2008, Charlie Bean sits on the MPC and the FPC. He had two stints at the Treasury in the late 1970s and early 1980s and has been an adviser to the TSC and the European parliament’s economic and monetary affairs committee.
  • Chair of the Independent Commission on Banking, which proposed ringfencing retail banks, Sir John Vickers was president of the Institute for Fiscal Studies from 2003 to 2007 and the Royal Economic Society from 2007 to 2010. He has also been the bank’s chief economist.

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