For the Bank of England, today was at least partly about showing that it is transparent and straightforward. After all, it has taken on new far-reaching powers which make it the most important public sector body outside Westminster. It has come under fire for introducing not one but two new monetary policy systems in six months. And it has, lately, come under scrutiny for its oversight of the foreign exchange market, amid allegations of rigging.
All of which is why today was all about presenting a new, more open face. How did it go? Not very well.
It started inauspiciously. Not long after Mark Carney arrived, it emerged that despite minutes suggesting there was little discord on economic policy, there were significant gulfs of opinion between the Governor and other members of the Monetary Policy Committee. The obvious conclusion: that the minutes don’t tell the full story.
A few moments later, Paul Fisher, the executive director for markets, revealed that the Bank routinely destroys its recordings of MPC meetings – a stark contrast with US counterpart the Federal Reserve, which publishes full transcripts of meetings after five years. Which means that those less-than-comprehensive minutes are the only historical record for perhaps the most momentous monetary policy decisions (think 315-year low interest rates, £375bn of quantitative easing) in history.
There were audible gasps in the room; one of the MPs muttered “shades of Nixon”, referring to the former US President’s alleged attempts to destroy secret recordings of his meetings during the Watergate scandal.
So there was an air of scepticism in the room even before the Treasury Committee got to the real talking-point of the day: the Bank’s knowledge, or otherwise, of alleged dubious deals in the foreign exchange markets, and its failure to act. Fisher and Carney insisted, time and time again, that although questions had been raised over irregularities in the forex markets all the way back in 2006, they hadn’t been told about actual abuse allegations until October. Their explanation may well have been reasonable, but it was so long-winded and abstruse few of the MPs seemed able to grasp it (and this latest vintage of TSC members is unusually intelligent).
The Bank’s solution, such as it is, is to introduce yet another layer of management at Threadneedle Street. There will be a new markets/banking tsar, who will have deputy-governor style powers although not, it would appear, the title, as that would involve another Act of Parliament. There will be a range of inquiries, not to mention a strategic plan over the Bank’s structure, which will be unveiled next week.
And to some extent that is entirely understandable. The new Governor has hardly had much time to get his feet under the table. His own personal reforms of the Bank (as opposed to those instituted by George Osborne and Mervyn King in previous years) will take time. And there’s nothing all that new about the Bank being secretive and tricky with MPs. Back in the days when Montagu Norman was Governor, it was tricky to get any words out of him at all at Parliamentary hearings.
The problem is that this is an entirely different world to the 1930s. The Bank officials may not like it, but wilful opaqueness is not compatible with the democratic system which appoints and employs them. The fact that the Bank routinely destroys MPC recordings is surely unacceptable – particularly since the minutes the Bank often wilfully overlook any disagreements between the committee members.
And the less people trust the Bank, the less likely they are to believe their explanations when it is in the vicinity of wrongdoing. Secrecy and intentional complexity can occasionally be construed as guilty behaviour – even when it may have done nothing wrong. It’s something worth dwelling on, given many expect the foreign exchange scandal to become even bigger and even more scandalous than the Libor one that preceded it.