LONDON (Reuters) - Officials charged with overseeing the Bank of England failed to hold the central bank to account during the 2007-09 financial crisis and may have made matters worse, a senior MP said on Wednesday.
The central bank published nearly 500 pages of minutes of meetings of its Court, a body which was meant to help set strategic direction and act as a check on its governor, who at the time of the crisis was Mervyn King.
The minutes of the Court and its subcommittees tally with a picture shown in other reports of a central bank struggling to deal with Britain’s first bank run in more than 100 years in 2007 and trying to stop a broader collapse in October 2008.
King said in May 2012 that the BoE had failed to properly identify and warn about risks facing banks in the run-up to the crisis, something he linked to it losing powers to directly regulate banks in 1997.
However, he noted the central bank took numerous steps to ensure banks had enough liquidity and urged them to rapidly increase their capital levels.
At the time, responsibility for Britain’s financial system was split between the BoE, the finance ministry and the Financial Services Authority — a body which was scrapped in 2013 as part of a shake-up of bank supervision.
The BoE now has primary responsibility for financial stability, and Andrew Tyrie, a lawmaker who chairs a parliament committee which monitors the central bank, said the BoE still needed to make more changes to how it supervises itself.
“The minutes show that during the crisis the Bank of England did not have a board worthy of the name. This mattered. And it still matters,” said Tyrie, one of the most vocal critics of the way the Bank of England is run. He has long pressed for a tougher oversight regime.
The BoE’s current governor, Mark Carney, announced some changes to the Court last month that Tyrie said were a step in the right direction.
The minutes show how, after the collapse of mortgage lender Northern Rock in late 2007, the BoE moved towards the conclusion that the three-way split of regulation was not working.
By early 2009 — shortly after the BoE had to deal with the near-collapse of two much larger lenders, Royal Bank of Scotland and Lloyds — officials were complaining that the FSA had failed to share information.
But Tyrie said the minutes also showed the Court had reinforced King’s decision to shift the BoE’s focus away from financial supervision in the run-up to the crisis.
“Non-executive directors appear to have done little thinking of their own about financial stability and to have added little or no substantive value to the Bank’s work on it. They may have achieved the opposite,” Tyrie said.
The minutes showed that in April 2008 there was “some reluctance” at the idea of the Bank taking on new responsibilities, “particularly in view of the challenges it faced in relation to monetary policy.”
Non-executive directors seemed more focused on covering their backs than helping the BoE during the crisis, Tyrie added.
Non-executive directors of the BoE at the time included trade union leader Brendan Barber, Labour politician Paul Myners and numerous business executives such as Roger Carr, who is due to take over as chairman of arms company BAE Systems.
The minutes do not identify directors’ individual comments.
They also show banks appeared unwilling to heed the BoE’s muted warnings about risks before the crisis.
Additional reporting by William Schomberg and Steve Slater; Editing by Ruth Pitchford