In its ‘Re-empower the Bank of England’ report, the think-tank says the Government’s decision to remove the essential powers from the Bank and transfer them to the FSA must be reversed if we are to prevent an economic breakdown recurring.
The report, written by former BoE external director Sir Martin Jacomb, says rather than let the FSA remain a single entity and control the supervision of individual banks and the financial institutions, it should become a subsidiary of the Bank supervising individual banks, protecting consumer interest and enforcing capital requirements only.
Jacomb says: “The central flaw in the restructuring was the removal of the Bank of England’s role in supervising individual banks. This role was transferred to the FSA. This meant that the Bank lost its most important weapons in supervising the banking system, having neither influence over, nor information about, the behaviour of banks.
“The tripartite arrangement needs to be recast. The FSA should become a subsidiary of the Bank of England. Its relationship with the Bank should be similar to that of the MPC.”
Jacomb is suggesting the creation of a separate agency to maintain the stability of the financial system and advise on liquidity requirements.
He says: “The Bank of England would then have within it three separate bodies – the MPC, the FSA and a ‘systemic policy and risk committee’.”