Oh bravo. As a response to these tumultuous times the proposal to install a group of City figures on the shoulder of the Bank of England governor, to raise the alarm should signs of financial instability appear on the horizon, is getting short shrift.
The apparent motivation for the installation of such éminence grise is to help avert another Northern Rock. The exact role and responsibilities of the “City panel” is a tad unclear, but the move is part of efforts to put financial stability front and centre of the Bank’s remit – and plays into the current stand-off about the appointment of a new deputy governor for monetary policy to replace Rachel Lomax.
Under the so-called Tripartite system the Bank is charged with financial stability – while the FSA is charged with oversight of individual banks. In the Northern Rock case, the latter failed in its duties. It’s less obvious that the Bank did.
The Bank is charged with monitoring risk across the system as a whole – whether it is able to do that sensibly without also considering the system’s individual risk components is up for debate as one potential incoherency of the Tripartite system, along with the communication or lack of it between the various parties.
Had the Bank been closer to, or more informed by opinion in the City (for which read the investment banks), would it have responded differently once Northern Rock had hit trouble, for example working harder to seal a Lloyds TSB rescue bid? Would it have responded more rapidly with a SLS-style liquidity measure once the system suffered paralysis?
More to the point, would either of those changes have been a good thing? If the banks broke it, don’t give them a leading voice in determining how to fix it.
The bank already has a deputy governor charged with financial stability – Sir John Gieve – who was roundly criticised during the Northern Rock affair. Mervyn King is surely right to insist that the monetary policy slot is filled by an expert in, well, monetary policy.
It is unclear what a panel of financial stability advisers would do. The gist is that a panel would beef up the Bank’s stability capabilities in the same way that external MPC members do. But without the decision-making power.
“It would not be a hard operational role,” said one Darling ally. “It might involve scrutinising decisions but potentially it’s more than that.”
Inspiring stuff. And who would staff this panel of experts? Who has the requisite experience, but is not a) conflicted, b) busy with other emeritus positions, c) lamentably out of touch, d) sullied by recent events?
FT Alphaville considers some leading bigwigs:
- Paul Myners. Rent-a-candidate when names are required for City-related vacancies. Former member of the Financial Reporting Council. Former chair of M&S, chair of Land Securities, and the Guardian Media Group. Approached about chairing Northern Rock should JC Flowers win the bidding. Understands the Bank of England from his time on the Court of Directors. But he’s also an adviser to hedge fund GLG, to Singapore’s investment arm GIC, and is charged with implementing the government’s new pensions savings scheme. Arguably got his hands full, even by his frenetic standards.
- Sir Nigel Rudd – another rent-a-grandee type. Has chaired numerous large companies – and served as deputy chairman of Barclays. Possibly too corporate industrialist and not enough City for the brief.
- Luqman Arnold – brought in to sort out Abbey – but the former chief executive of UBS is probably too still much of a practitioner to want or suit the job. Conflicts would be inevitable.
- Bryan Sanderson – the former chair of Standard Chartered and BUPA was drafted in to chair Northern Rock after Matt Ridley retired disgraced. Must have won gratitute for stepping into the breach and has at least seen first hand what happens when a bank goes bust.
- Marcus Agius – the former Lazard man is seen as the very essence of blue-blooded City grandeur. Position as chair at Barclays probably puts him too close to the crunch for comfort.
- Sir Victor Blank – ditto but at Lloyds TSB.
- David Verey – former chairman of London arm of Lazard and has lately stepped down as UK chair of Blackstone. Professed he had no plans to retire just yet, but is appearently keen to get his hands dirty again in an executive role. This wouldn’t fit the bill.
- Larry Elliott – the Guardian’s economics editor almost certainly feels he has something to add. As ever.
- Richard Lambert – former FT editor who went to the MPC, then the CBI. The Bank might prefer that members of their new City watch-squad come without an MPC past.
Related links
City panel to oversee Bank – FT.com