Earlier this week, the Treasury committee released its report on the accountability of the Bank of England with Andrew Tyrie, the chairman, calling for "radical overhaul" of the Bank's "ramshackle governance." It is undeniable that the Bank must take steps to improve its transparency. Regrettably, however, the report steps out of bounds by threatening to place the Bank under extensive prior scrutiny and control of Parliament. This is a dangerous and categorical violation of the Bank's independence. More care must be given to rethink how we can hold the Bank accountable without jeopardising its sovereignty.
After the failures of the 2008 financial crisis, and with its new mandate to oversee the country's financial sector, efforts to make the Bank more transparent are both welcomed and well overdue. As such, many of the report's technical recommendations are to be applauded. The creation of a robust and independent supervisory body filled with technocrats, rather than friends of special interests, will enhance the Bank's legitimacy and strengthen its policies. Regular reporting to Parliament will foster trust between the two bodies and balance competing interests.
Unfortunately, many of these pragmatic recommendations are overshadowed by the committee's effort to inject itself into the day-to-day policy making of the Bank. Prior scrutiny of Bank policies by Parliament, as suggested by the committee, lessens its ability to manage the economy with a pragmatic, long-term view.
Most remarkably, the report would require the Chancellor to take over the Bank during not just times of crisis, but any time a "crisis may be anticipated." The Chancellor would remain in power for any length of time without the advice of the Bank, and only step down upon his or her own declaration of the end of a crisis. This is an extraordinary breach of the Bank's independence, placing the Bank within the jurisdiction of the Treasury whenever they see fit to do so.
Moreover, it will introduce the same ambiguity that paralysed the Government in 2008. Who decides what normal circumstances are? How does one define the anticipation of a crisis? When does a crisis officially end?
The complex and cross-cutting nature of today's financial sector will indeed require greater collaboration between Bank officials and members of Parliament. But it must be done in a way that respect's the Bank's inalienable independence while addressing the concerns of the public to hold the Bank accountable. The newly created Financial Stability Oversight Council in the United States, chaired by the Treasury of Secretary and joined by the Governor of the Federal Reserve, shows such a compromise is possible.
Proper financial regulation is a delicate balancing act. The long-term health and stability of our economy requires great care to safeguard both the independence of the Bank and the interests of the public.