Accountability of the Bank of England

The Bank of England is being given new powers which affect everyone in the country. It will be responsible for preventing another financial crisis. The inquiry has thrown into relief several issues that may require further examination. However, this report is focussed solely on the accountability of the Bank of England. Wider issues in the proposals contained in the Government’s Draft Financial Services Bill may be examined in the first instance by the Joint Committee1. We may also return to aspects of the Draft Bill in future inquiries.

The evidence that we have received suggests that the governance of the Bank needs strengthening and that it needs to be more open about its work. The Bank must be held more clearly to account than it has been in the past.

In particular we recommend that the role of the Court of the Bank of England should be substantially enhanced. It should be transformed into a leaner and more expert Supervisory Board, with the power to conduct retrospective reviews of Bank policies and conduct. These reviews are not a substitute for oversight by us, the Treasury Committee, but will allow the Supervisory Board of the Bank to ensure that the Bank learns from its own experience, and to provide this Committee with appropriate evidence on the Bank’s performance in order to enhance scrutiny of the Bank’s actions. The Board would be made responsible for meeting reasonable requests for information by Parliament.

The Bank should publish indicators of financial stability by which its performance to meet the financial stability objectives may be assessed.

The lines of responsibility and accountability between the Chancellor of the Exchequer, HM Treasury, and the Bank of England at times of financial difficulty must be clarified. In a crisis, where public money is at risk, the Chancellor should be given statutory responsibility for the conduct of affairs, including a limited special power to direct the Bank.

The Bank must be suitably staffed to perform the enlarged role proposed for it. It must ensure that it does not deter suitable candidates from joining its Committees by over-rigid rules on conflicts of interest. The Financial Policy Committee and the Monetary Policy Committee should have a majority of external members. The Governor of the Bank should be appointed for a single non-renewable term of eight years.