BoE: not court napping IMO

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.



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3 Responses to BoE: not court napping IMO

  1. Tim Young says:

    I have a different view Tony. Groupthink need not involve any bending of will, but can occur by simply excluding people with other ways of thinking, and that is a truer picture of what I think happened at the BoE in the pre-crisis period. Indeed I would say that your remark that “Court and the BoE exec were no different from the rest of the Profession” is telling, especially in the light of other posts here about economics education and “research” methods that defines “the Profession”.

    My story from the time is of warning within the BoE of a financial crisis, probably to the point of being a pain, and getting little engagement from people nearer the monetary policy decision makers at all. From my position in the Market Operations area requiring careful assessment of economic data releases and central bank comments, it occurred to me that the policymakers’ behaviour, if not thinking, was becoming inconsistent and ignoring obvious questions. I wrote a discussion paper in March 2000 predicting a financial crisis if monetary policy continued to be applied in the same way, and tried to get BoE analysts to read it for the next couple of years. I sent the paper to at least two members of the MPC who I thought might be sympathetic, and received no response, although a senior figure of the time in Monetary Analysis did advise that the paper should not be published outside the BoE lest it cause trouble. Now maybe I was, and remain, a sub-standard economist, but if that is the case, my arguments should have been embarrassingly dismantled, not just ignored. And my job at the time, not only requiring my own analysis of the economic picture, but also a flow of views from market analysts of all kinds, put me in a very good position to develop ideas in a different way from the analysts from “the Profession” informing most of the BoE’s decision making at the time.

    • Tony Yates says:

      Unfortunately, every time I read accounts of how people felt they saw it coming, the intellectual equivalent of my eyes glaze over. There was definitely hierarchialism at the Bank. I watched that. But in the early phases, there were raging arguments on the executive about the right way to handle it, which I doubt I can go into for OSA reasons.

      • Tim Young says:

        Nah, different point. This was not about hierarchicalism, or who said what within the MPC and its close advisers, but willingness to consider arguments drawing on different ways of analysis, from people outside the group judged as being qualified to have views meriting serious consideration. And, the significance of the fact, verifiable by the BoE if they care, that I happened to “see it coming”, albeit more in terms of how than when, is not so much as about “I told you so” as about my argument being worth checking out to see whether anything could be learned from it.

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