The Treasury select committee has renewed calls for improvements to the governance and accountability of the Bank of England.
The committee’s report on the Financial Services Bill, as it stood at the end of its passage through the House of Commons, warns arrangements for the bank’s governance must not be left to Threadneedle Street.
It says: “The Government believes that in general, the governance of the bank should primarily be a matter for the bank itself. We disagree.”
The report also calls for the Prudential Regulation Authority to be given a competition objective and for a rebalancing of the membership of the Financial Policy Committee and monetary policy committees so external members are in the majority. “The committee remains concerned about the risk of groupthink,” it says.
MPs are still unsatisfied with moves by the bank, backed by the Government to set up an “oversight committee”, underneath its court of directors, to scrutinise the bank’s work.
The TSC says the oversight committee’s focus on process rather than policy and its inability to assess the substance of any external reviews is “inadequate”.
The report renews the TSC’s calls for the court of directors to be replaced with a super- visory board which operates “as far as possible, according to corporate governance best practice”.
The report calls for the bank’s court, if not the committee’s desired supervisory board, to be given a statutory duty to carry out retrospective reviews of the bank’s performance including on the merits of policy.
The bill gives the Chancellor a power of direction over certain activities of the bank once the governor informs him problems in the economy present a “material risk” to public funds.
The report says: “The legislation must stand the test of time. A future crisis, many years hence, may require tools not currently considered appropriate, such as those given to the FPC, nor even yet developed.”
Within the bank, the Financial Policy Committee will have a series of macroeconomic tools take action against threats to the stability of the UK’s financial system.
Concerns have been raised that a financial stability target is not as easily definable as the monetary policy committee’s 2 per cent inflation target, making holding the FPC to account difficult. The report says the Government has given assurances such targets will be available and the bill should require the Treasury and the bank to agree on targets for the FPC.