The Bank’s court announces three separate five-month reviews – but none will cover the bank run on Northern Rock
The Bank of England remained under intense pressure to embark on sweeping reforms of the way it operates even as it appeared to cave in to political pressure by announcing a review into its handling of the 2008 banking crisis.
The Bank’s court – akin to a board of directors – announced three separate five-month reviews: into the way liquidity was provided to Royal Bank of Scotland and HBOS in 2008 and 2009; the Bank’s general policy about providing liquidity to the financial system; and into the forecasting capabilities of the monetary policy committee, which has repeatedly failed to predict inflation accurately. None of the reviews covers the crisis at Northern Rock, which in September 2007 suffered the first bank run in Britain since Overend, Gurney & Co in 1866. The Treasury has said there was “some difficulty” around the Bank’s concerns about the “moral hazard” involved in providing emergency liquidity support to the Newcastle-based lender.
Andrew Tyrie, the Conservative MP who chairs the Treasury select committee, which has led calls on the Bank to explain its handling of the crisis, said the announcement “is not what is needed”. He said the Bank should have undertaken a comprehensive review years ago – and not in the midst of the eurozone crisis – and he kept up his calls for changes to its oversight system.
“A proper oversight or supervisory board is needed, with the self-confidence and policy expertise to commission reviews, both internally and externally, of Bank performance and to assess their conclusions,” he said.
Only two months after the Bank’s governor, Sir Mervyn King, declared himself “baffled” at the need for any review into the crisis – and before sweeping new powers for the Bank are to be debated in the House of Lords – the court declared that “now is the right time” to learn lessons.
Sir David Lees, chairman of the Bank’s court, said: “The Court of the Bank of England believes it is important for the Bank to learn practical lessons from past experience in order to improve the way it operates in the future.”
The court pledged to publish the reviews, due to be completed in October 2012. They follow reviews by the Financial Services Authority (FSA) in 2009 and the Treasury, which published a 60-page review into its own handling of the financial crisis in March. King’s admission this month that the Bank should have “shouted from the rooftops” about its concerns added to the calls for a review.
King, who sits on the court, was quick to welcome the reviews. “Major changes to the operations of the Bank have already been made in the light of the financial crisis. These detailed, independent reviews will help to ensure that all the important lessons for the future have been learned,” he said.
But Lord Myners, a one-time member of the court and City minister at the time of the bailouts, said: “I would say there is a feeling of teeth being drawn and the governor selecting which teeth he’s allowing to be removed.”
The reviews will “pay close attention to the most intense period of the financial crisis in 2008-9 that included the collapse of Lehman Brothers in the United States in September 2008, the recapitalisation of the major UK banks and the deep global recession” the court said.
The review into the so-called “emergency liquidity assistance” for RBS and HBOS is to be conducted by Ian Plenderleith, who spent 36 years at the bank before retiring in 2002.
The review into the way the Bank’s money market operations function during time of crisis is to be conducted by Bill Winters, the former banker who was recently a member of the Independent Commission on Banking.
The Bank’s record of forecasting inflation and growth will be put under the microscope by David Stockton, a former chief economist at the US central bank, the Federal Reserve, which is credited with being concerned with issues like house prices and unemployment that are excluded from a more narrowly drawn remit for the Bank of England. However, as a senior adviser to former Fed boss Alan Greenspan and current head Ben Bernanke, Stockton was part of a team that failed to spot the financial crash of 2008.
The Bank made clear it would “focus firmly on lessons to improve the way the Bank operates” and not “stray into the actions” of the other tripartite authorities, that is the Treasury or the FSA.