BoE governor Mark Carney has devised a wide-ranging overhaul of the Bank's management and organisation. His strategic plan is designed to sweep away barriers between the Bank's various activities in pursuit of what he has dubbed "One Bank". (Includes comment from Simon Nixon.)
The Plan, to be implemented over the next three years, provides an ambitious agenda to transform the institution to take full advantage of the Bank's expanded policy responsibilities. It will create a single, unified institution – One Bank – that will maximise its impact by working together across all its functions.
Notable changes are:
The creation of a new Deputy Governor-level position for Markets and Banking. The role will be taken by Dr Nemat Shafik. As Deputy Governor for Markets and Banking, reporting directly to the Governor, Dr Shafik will provide greater focus at the very top of the Bank on these two core policy areas. Dr Shafik will be a member of the MPC and will be appointed to the Board of the PRA. The Government has indicated its intention to place this appointment on a statutory basis in due course. Once formalised, Dr Shafik will hold a seat on the FPC. Dr Shafik will be responsible for reshaping the Bank’s operations and balance sheet, including ensuring robust risk management practices and helping to lead the design and execution of an eventual exit from quantitative easing by the MPC. She will also oversee the implementation of reforms to the Bank’s Sterling Monetary Framework, lead the Bank’s work to build fair, efficient and effective financial markets, and review and strengthen the Bank’s Markets and Banking areas, including a comprehensive review of the Bank’s essential market intelligence function. Dr Shafik will also be jointly responsible for the Bank’s international surveillance, analysis and engagement. She will be the Bank’s G7 Deputy and take responsibility for international monetary issues and liaison with the IMF.
An expanded role for the Chief Economist to build the Bank’s research, analysis and data capability. The role will be taken by Andy Haldane. To build cross-Bank research, analysis and data capabilities, the Chief Economist’s role will be expanded. For these cross Bank issues, the Chief Economist will be responsible to the Governors as a whole. To allow for that, a new Monetary Analysis (MA) Director position will be created, reporting to the Chief Economist, who will oversee the work of the MA divisions, consistent with the recommendations of the Stockton Review.
A new Financial Stability Strategy and Risk Directorate. A focused financial stability strategy and risk directorate will be created, under the leadership of an Executive Director for Financial Stability Strategy and Risk, bringing together several existing divisions from the Financial Stability Directorate and the PRA. The area will primarily serve the FPC, but also the MPC and PRA Board, and will be responsible for co-ordinating the new annual stress testing exercise. The Executive Director of FS-Strategy and Risk will be a member of FPC. The role will be taken by Spencer Dale.
An Executive Director for Specialist Supervision and Regulatory Operations in the Prudential Regulatory Authority (PRA). The role will be taken by Paul Fisher. This ED will report to the Deputy Governor for Prudential Regulation and will be responsible for Supervisory Oversight, Supervisory Support, the PRA Chief Operating Officer function and, through a Director of Specialist Supervision, the PRA Risk Specialists and both Banking and Insurance Prudential Supervision Support functions. Alongside the Executive Director of Insurance Supervision, the new ED will be a Deputy Head of the PRA. He will, in due course, become a member of the PRA Board. The appointment will create an enhanced senior leadership team for the PRA and reinforce the capability of senior management to engage with oversight and other functions that support institution-specific teams. Although the primary function of this area is to support microprudential supervision, the Director of Specialist Supervision will have a secondary reporting line to the ED for Financial Stability Risk and Strategy, indicating the important role this function will play in supporting stress testing and other FPC work.
A new Prudential Policy Directorate. A new Prudential Policy Directorate will be created, bringing together relevant Prudential Regulation Authority (PRA) and Financial Stability (FS) policy divisions. The area will be led by a new Executive Director reporting jointly to Deputy Governor–FS and the Deputy Governor–PRA. The role will be taken by David Rule.
A new International Directorate. A new International Directorate will be created, with responsibility for the Bank’s surveillance and analysis of the international environment and for co-ordinating interactions with international bodies. Led by a new Director, the directorate will bring together functions currently dispersed across MA and FS, and will report jointly to DG Markets and Banking and DG Financial Stability, who will share responsibilities for international representation at Deputy level. It will have overall responsibility for co-ordinating the Bank’s international and European strategy, and will ensure the Bank has a forward-looking and consistent approach to its international engagement and that its stance is co-ordinated across the wide range of international fora with which the Bank is now engaged. It will also produce the MPC’s world economic forecasts, co-ordinating with the Director of Monetary Analysis, and will support the FPC’s financial stability risk assessment.
Enhancement of the PRA line supervision team. The model of judgement-led supervision employed in the PRA requires both expert line supervision and senior level engagement with firms. That capability will be reinforced: an Executive Director for International Banks Supervision will lead the supervision of branches and subsidiaries of overseas banks. The role will be taken by Megan Butler. An Executive Director for supervision of UK deposit takers will be created, and filled by Lyndon Nelson. He will be supported by Directors for Systemic UK banks and for Non-Systemic UK deposit takers.
A new Director, Banknotes and Chief Cashier, and a new Director for Supervision of Financial Market Infrastructures. A new Director for Banknotes, and Chief Cashier, reporting to the Deputy Governor-Monetary Policy. The role will be taken by Victoria Cleland. A new Director for Supervision of Financial Market Infrastructures, reporting to the Deputy Governor-Financial Stability, will give focused senior leadership to these two core areas.
An independent evaluation unit to be established. A new unit to support the Oversight Committee of the Bank’s Court, led by a Director reporting to the Chairman of the Oversight Committee. Modelled on the Independent Evaluation Office of the IMF, this function will support the Oversight Committee in its oversight of the performance and processes of the Bank.
Writing in the WSJ, Simon Nixon says the Bank of England was long overdue a thorough shake-up. It is hard to overstate just how badly this institution has lost its way since the start of the global financial crisis. By the time former Governor Mervyn King retired last June, the UK central bank had lost the confidence of all its stakeholders, having found itself at odds with the government, the Treasury, Parliament, the banks, the markets and the public.
This wasn’t a reflection of a robustly independent institution treading on a few toes as it exercised its onerous duties. It was the inevitable response to an organisation that had managed to be simultaneously intellectually arrogant and dangerously incompetent. The financial crisis had exposed deep deficiencies in the BoE’s understanding of how banks and markets operate and major shortcomings in its understanding of the dynamics of the UK economy.
The appointment of Andrew Haldane as the BOE’s new chief economist at the head of an expanded macro-economic analysis unit is bold and imaginative. Although Mr Haldane became closely identified with Mr King’s ultra-conservative approach to financial reform and managed to ruffle many feathers both in the financial and policy world with his radicalism, he is widely admired as one of the most influential and provocative thinkers in global finance. Given the manifest deficiencies that have emerged in the mainstream macro-economic theories relied upon by the BoE and other central bankers, his brand of disruptive thinking is exactly what is required to shake up the complacent world of economic forecasting and monetary policy-making.
Despite the BoE’s failures before and during the crisis, it has emerged a vastly more powerful institution with new responsibilities and new tools—and these changes will concentrate even more power in Mr Carney’s hands: his four deputy governors will sit on all three of the BOE’s main policy-making committees—the MPC, the Financial Policy Committee and the Prudential Regulatory Authority—and these committee swill increasingly meet together, increasing the chances of a new groupthink dominated by Mr Carney’s own views.
That means even more is now riding on Mr Carney’s personal judgement. His challenge now is to navigate the UK economy out of its current crisis mode, exiting ultra-loose monetary policy without inflating new asset-price bubbles or triggering a new downturn or financial crisis. That is a daunting task. If he succeeds, he is entitled to claim the credit. But if he fails, he will not be able to duck the blame.
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