The Treasury select committee has renewed calls for improvements to the governance and accountability of the Bank of England under the new regulatory architecture.
The committee’s report on the Financial Services Bill, currently at the start of its passage through the House of Lords, warns arrangements for the Bank’s governance must not left to Threadneedle Street, as the Government proposes.
It says: “We note the Government believes that in general, the governance of the Bank should primarily be a matter for the Bank itself. We disagree.”
Peers will debate the bill for the first time on Monday and the committee says it is now down to the House of Lords to push for the changes it is calling for, including the Prudential Regulation Authority getting a competition objective and a rebalancing of the membership of the Financial Policy Committee so the majority of its members are not bank staff.
The report calls for the Banks court of directors to be given a statutory duty to carry out retrospective reviews of the Bank’s performance including on the merits of policy. In April, TSC chair Andrew Tyrie withdrew an amendment calling for the duty and a requirement for the Bank to publish minutes of court meetings after Treasury financial secretary Mark Hoban said he would try and find a way of putting the measures in place.
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 committee wants the Chancellor to have a general power of direction over the Bank. It says: “While the specific powers in the bill may cover most events currently foreseeable, the legislation must stand the test of time. A future crisis, many years hence, may require tool not currently considered appropriate, such as those given to the FPC, nor even yet developed.”
The report criticises the lack of time given to debating the bill in the House of Commons adding that it meant Hoban gave no detailed response to an amendment that would have given the TSC a veto over the appointment of the Governor of the Bank. The committee says it wants the Government to explain its opposition to the move as the bill passes through the House of Lords.
Within the Bank, the Financial Policy Committee will have a series of macroeconomic tools to spot and 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 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.