Does the Bank of England deserve more power?

Critics of Gordon Brown’s ‘tripartite’ regulatory structure want authority restored to Threadneedle Street, says Richard Northedge.

Critics of Gordon Brown’s ‘tripartite’ regulatory structure want authority restored to Threadneedle Street, says Richard Northedge. But is the Bank’s track record tarnished?

The simplistic initial analysis of the financial crisis — that the tripartite oversight structure of the Treasury, the Financial Services Authority and the Bank of England had failed — has developed over two years into a more complex argument. Now the blame is directed at chancellors Brown and Darling along with the regulatory body they created, the FSA, while the central bank is increasingly seen as an innocent bystander caught up in others’ failings. If the Bank had been monitoring the financial sector, say its supporters, there might have been no banking crisis and thus no recession.

Governor Mervyn King has not yet called publicly for a return of the banking supervision role that was snatched from the Bank and given to the new FSA as soon as Brown and Darling (then Chief Secretary) moved into the Treasury, but he is demanding more powers. And even if he will not say it himself, many in the City and on the opposition benches are calling for bank monitoring to return from Canary Wharf to Threadneedle Street. King is suddenly the hero of the hour: publicly airing his differences with the Chancellor at last week’s Mansion House dinner has only added to his standing.

Yet canonising the Governor is somewhat simplistic too. The Bank has made its mistakes. Indeed, bank regulation was transferred to the FSA in 1997 because the collapses of Barings and BCCI, like Johnson Matthey previously, happened under the Old Lady’s supervision. There are those who argue with hindsight that the move was also provoked by Brown’s inner urge to divide and rule, but there is no doubt that the Bank’s record was tarnished.