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"There was a good deal to welcome; the Bank has accepted a number of specific recommendations. Furthermore, the Bank appears to have accepted the Treasury Committee’s analysis of the deficiencies of its current corporate governance structure. It also appears to recognise the shortcomings of the current accountability arrangements, given the Bank's enhanced powers and responsibilities for financial stability.

This is a huge step forward.

Unfortunately the Bank's proposed remedy is not. It falls well short of what is required.

The Bank needs a proper Board – fit for the 21st Century.

A lot is at stake. The Bank's authority can be greatly enhanced if we get this right.

It is understandable that people don’t rush to embrace more meaningful and intrusive supervision of their activities. But in a public body with these powers, it is essential.

The legitimacy of the Bank's decisions will depend on it being properly accountable, required to explain itself and its decisions in a meaningful and detailed way to Parliament. This is, quite rightly, what the public will expect."

1. Supervisory Board vs Oversight sub-Committee

The Bank proposes an Oversight Committee, which would be a sub-committee of the Court made up of non- executives only.  It would be able to commission retrospective external reviews of Bank decisions. But it would not comment on what was produced. Nor would any internal review be undertaken by the Oversight Committee.

"A properly reformed Oversight, or Supervisory, Board – either name will do – with the duty and authority retrospectively to examine the merits of policy decisions is essential.

All modern institutions review their own performance.

In that respect a reformed Bank of England should be no different.

Like any other institution, the Bank's policy performance will be improved by internal, retrospective review by its Board.

The Bank has still not properly reviewed its own role in the financial crisis.  The Court's proposals would not permit the sort of review that the FSA has recently conducted into RBS.

The public and Parliament can and must secure the higher level of scrutiny - for the decisions that affect their lives - which they demand." 

2. Crisis management

The Bank has now accepted the Committee's analysis that the Chancellor requires powers of direction in a crisis and that one person needs to be, and be seen to be, in charge. However, the Bank's proposal falls short of what we recommended and what is required:

i. The Bank has not accepted the Committee's proposal that the Chancellor's power of direction should be available as soon as the Bank has alerted the Treasury that a material risk to public funds is a possibility.  This is essential to ensure that the Chancellor is not faced with a fait accompli and without options; unable to intervene as a crisis develops and, in practice, incapable of altering direction as it breaks.

ii. The Bank recommends that these powers be contained in a Memorandum of Understanding. The Committee considers it essential that they be placed on a statutory basis; 

iii.  The Bank suggests that two criteria need to be satisfied before the power of direction becomes available to the Chancellor: that there is a material risk to public funds and that the Chancellor, having consulted the Governor, is satisfied there is a serious threat to financial stability. The Treasury Committee recommended that a material risk to public funds alone be the trigger; 

iv.  The Bank's proposal would unduly restrict the Chancellor’s power of direction to certain "instruments of crisis management"; 

"As the Treasury Committee has repeatedly said, the public will expect, when there is a material risk to public funds, the Chancellor to be in charge, to be seen to be in charge, and to be accountable to Parliament."

3. The role of external members of the MPC and FPC, and appointment of the Governor

The Treasury Committee has received extensive advice that the Bank’s Policy Committee and Supervisory/Oversight Boards should have on them a majority of external members in order to promote debate and creative tension to discourage groupthink. A five to four ratio of externals would not in our view dilute the Committees in any way, nor have the consequences the Governor claims. A majority of externals is a necessary and sensible precaution against groupthink.

• Report: Accountability of the Bank of England: Response from the Court of the Bank to the Twenty-first Report the Committee
• Response from the Court of the Bank of England (PDF 4.74 MB)
• Inquiry: Accountability of the Bank of England