Bank of England governance plan criticised

Sir Mervyn King appeared before the Treasury Committee last week

The Bank of England's proposals to improve its governance have been criticised by a committee of MPs.

The Treasury Committee said the Bank's current governing body, the Court of the Bank of England, was antiquated and improvement plans were not sufficient.

The central bank is to take powers back from the Financial Services Authority as part of reforms aimed at avoiding another banking crisis.

MPs said the Bank needed "a proper board... fit for the 21st Century".

The committee's chair, Andrew Tyrie, welcomed the fact that the Bank of England "appears to recognise the shortcomings of the current accountability arrangements, given the Bank's enhanced powers and responsibilities for financial stability".

But he added that its proposed remedy "falls well short of what is required".

The committee cited three areas in which it disagreed with the Bank of England's plans:

• It said the Bank needed a supervisory committee of non-executives that would have full powers to review decisions made by the Bank and comment on them

• It added that it should be written into law that the chancellor would be in charge in a crisis as soon as the Bank had said public money was at risk, to prevent the chancellor being sidelined

• The MPs said that both the Bank's supervisory committee and its interest rate-setting Monetary Policy Committee should have a majority of members from outside the Bank.

Bank of England governor Sir Mervyn King appeared before the Treasury Committee last week and was accused by some members of the committee of being disrespectful.

Some members felt they had been given too little time to consider the Bank's governance proposals.

The Bank proposed having a supervisory committee of non-executives who would be able to commission reviews of Bank decisions from experts outside the Bank, but not internal reviews.

It accepted the Treasury Committee's suggestion that in future, the governor should be appointed for a single eight-year term, instead of a renewable five-year term as happens at the moment.

The new rules on Bank of England governance will be contained in the Financial Services Bill, which is due to be published at the end of January.