–BOE King Backs Idea of Treasury Having Power To Direct BOE In Crisis

LONDON (MNI) – The next Bank of England Governor will serve a
single eight-year term if the recommendations of the BOE’s Court are
implemented.

The Court, effectively the central bank’s board, has backed the
proposal by the Treasury Select Committee to limit a governor to a
single term. BOE Governor Mervyn King is currently on his second,
five-year term which is set to end on June 30, 2013.

The Court on Tuesday published its response to a series of
recommendations by the TSC on central bank accountability.

The change – if implemented – would bring the BOE into line with
the European Central Bank whose president and executive board members
are also limited to a single, 8-year term.

With the BOE taking the lead in financial regulation and charged
with ensuring financial stability, the central bank is becoming ever
more powerful. The TSC came up with proposals to enhance accountability
and set limits to the BOE’s power.

The BOE Court’s proposal is to create “an Oversight Committee, with
direct access to the policymaking processes and papers in the Bank, and
formed of non-executive directors” to assess the central bank’s work on
financial stability.

The Court also gives some support to the TSC’s view that, in times
of crisis, the head of the Treasury, the chancellor of the exchequer,
should have the power to direct the BOE’s actions since taxpayers’
money would potentially in play.

The Court says there should be “a power for the Chancellor, when
public funds are at risk and there is a serious threat to financial
stability, to direct the use of the Bank’s tools of crisis management.”

In oral evidence to the TSC King went further, saying he could see
no reason why parliament should not grant a statutory power to the
chancellor to be able to direct the BOE during a financial crisis.

The BOE has drawn up a draft memorandum of understanding, which is
yet to be published, with the Treasury over crisis management. King said
that the terms of this MOU would shortly be finalised.

Asked thy the Treasury power to direct the BOE in a crisis can’t be
put into statute, King replied, “No reason at all … The MOU will make
clear that is what we want.”

He told lawmakers “I understand where you are coming from and I
don’t think you should assume today that we are going to end up in a
different position.”

–London newsroom 0044 20 7862 7491; email: drobinson@marketnews.com

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