Bank of England executives and non-executive directors on its Court failed to adequately respond to the financial crisis due to hierarchical ‘groupthink’, widespread conflicts of interest and self-interested back-covering, Andrew Tyrie has said.
Responding to the publication today (7 January) after a six-year wait of the minutes from the Court of the Bank of England covering the period 2007 and 2009, Mr Tyrie stated that they show that during the crisis the Bank of England did not have a board worthy of the name.
In its own statement to go alongside the minutes, the Bank admitted during the period it was operating within a limiting statutory framework which has since been revised, with the court much larger than at present.
In particular it cited “a number of members had standing conflicts of interest” and that there was no provision for a non-executive chairman.
The notes show the bank was apparently unaware of the impending crash up to a month before it happened, revealing that while liquidity was identified as a “central concern” in July 2007, no action was taken.
According to FTAdviser parent paper the Financial Times, the minutes also reveal that former governor Lord King kept the Bank’s governing body in the dark on key matters of internal dissent and denied non-executive directors information about financial stability.
Lord King told the FT: “What matters to the country are the decisions we took, and those decisions prevented a repetition of the Great Depression and made it possible for the recovery that is now underway.”
In addition to the comprised nature of the board, the Bank also said in its statement it was restricted and had no powers to take actions to manage macro-prudential risks as it was not responsible for banking supervision following the establishment of the Financial Services Authority.
“The roles, in a crisis, of the bank, the Treasury and the Financial Services Authority were ill-defined.
“These deficiencies were rapidly identified during the period covered by the minutes, and were addressed both by the 2009 Banking Act and subsequently by the 2012 Financial Services Act, which radically changed both the role of the bank and the structure of its governance.”
The Treasury Committee has been calling for the minutes to be released since 2011, so its chairman Andrew Tyrie welcomed the move, but also levelled strong criticism of executives and the role of the court in particular.
“The Court’s job should not have been to second guess the Bank’s executive or policy-makers, but it should have been able to provide effective challenge to the executive, and to make clear that, where appropriate, it would conduct retrospective reviews of bank policy and performance.”
Mr Tyrie stated that even when questions were asked by individual non-executive directors, the executive usually presented a unified front to the Court, apparently rendering it of little or no use as a forum for creative discussion and constructive challenge.
The minutes reveal several examples of this, with Mr Tyrie accusing the Bank of being a very hierarchical organisation, with clear signs of ‘groupthink’ among its leadership. He also sought to criticise the court for not challenging the executive strongly.