What should people make of the Minutes of the Bank of England’s ‘Court’ of Directors dating back to the early phases of the financial crisis? Was the BoE and ‘Court’ caught napping? Not in my opinion.
A few points.
The financial crisis was a global professional oversight, and there is nothing special about the apparent confidence the BoE had in dealing with its earliest tremors. You could, I am sure, find similar conversations going on at all the central banks, finance ministries, and macro-finance groups in the leading universities.
It’s been suggested – eg by Danny Blanchflower on Twitter – that the minutes show evidence of ‘Groupthink’. I don’t agree. Groupthink suggests almost wilful bending of one’s views to the collective. As I said above, Court and the BoE exec were no different from the rest of the Profession. I don’t think the world missed the financial crisis because of Groupthink. They missed it because it was genuinely hard to foresee, and because they misapprehended risks in the system. Plus, from what I remember, there was vigorous and sometimes acrimonious disagreement amongst the Governors about how to approach the early phases of the financial crisis. There was definitely no shortage of debate and challenge at that level.
Early media coverage is taking the lack of involvement of Court in the BoE’s decisions during the early phase of the crisis as dysfunction on both sides. And the lack of challenge from Court on policy and analysis as dysfunction on its side. But I don’t subscribe to this view. At some point, the infinite regress of overseers, as far as operational and policy decisions goes, has to stop. So why not stop it with the Governors and the BoE’s policy committees. Accountability, to preserve effective delegation and policymaking, has to be done ex-post, and at low-frequency. If it’s done well, with those in charge wielding a credible threat to commission regular reviews by respected experts, the policymakers will feel the appropriate pressure to do their jobs well. If the Court had been challenging and second-guessing policy all the way through the crisis, this could well have made things worse, more chaotic, and decision-making less decisive. More recently, Court has been commissioning reviews, on all kinds of things. We’ve had the Stockton Report, the Warsh Report, the Winters Report, the Plenderleith Report. One could point a finger and say why weren’t there more reviews earlier on? But one could just as well blame Treasury Committee for that.
So, before you get too outraged at these minutes, ask yourself if things would really have been any different with a different set of personalities in those roles, with different reporting lines, making their challenges over lunch. I doubt it. And then ask yourself what the right model for oversight should be at the Bank. Is it so obvious? The outrage suggests it is, but I’m not so sure. Andrew Tyrie has piled in, castigating Court at the time, as though the Treasury and Treasury Committee somehow had nothing to do with its design, mandate and make-up, nor any role themselves in having failed to provide effective challenge, an activity they certainly see as their function too.