Former Bank of England policy maker Willem Buiter said it’s a “mistake” to place full responsibility for financial stability with Governor Mervyn King, criticizing a government plan to overhaul banking regulation.
“The Bank of England is greatly overburdened and too powerful in this proposed construction, especially the governor and the two deputy governors,” Buiter said at a U.K. parliament hearing in London today. “The obvious solution is to remove prudential supervision from the bank.”
Britain’s government is planning the biggest shakeup of regulation since 1997, scrapping the current banking regulator and handing the powers to a new authority within the Bank of England. The government plan will also create a Financial Policy Committee chaired by King, extending his remit over financial stability as well as monetary policy.
“The reform of financial-stability management in this country is disastrously misconceived,” Buiter said. “The first mistake is that the Treasury should be at the center of financial stability. It is now on the sidelines.”
Another former policy maker, Sushil Wadhwani, said the central bank’s governing board should have more power as policy makers get control over financial stability.
“It’s important to make sure that the court is given more powers, especially if” the central bank is “becoming more powerful, to prevent an accountability deficit,” Wadhwani said at the hearing at the Treasury Select Committee. “We must to do everything in our power to make sure there are sufficient checks and balances.”
‘Irrelevant’
Buiter, who is Citigroup Inc. chief economist and said he was speaking in a personal capacity, told the hearing that the Bank of England’s board is “irrelevant and should be abolished.” He said the bank’s shareholder is the U.K. Treasury and that the “board of directors is you,” referring to the committee chaired by lawmaker Andrew Tyrie that scrutinizes the central bank.
Asked by lawmakers what areas the committee should focus on in any inquiry into the central bank, Wadhwani said they should look at the collapse of Northern Rock Plc, and whether monetary policy should have “leaned against the wind” before the crisis.
He also noted questions about the central bank’s economic forecasting models.
“It was very odd that they were running a forecasting model with no role for bankruptcies and no role for credit constraints,” he said.
Source: http://www.bloomberg.com
“The Bank of England is greatly overburdened and too powerful in this proposed construction, especially the governor and the two deputy governors,” Buiter said at a U.K. parliament hearing in London today. “The obvious solution is to remove prudential supervision from the bank.”
Britain’s government is planning the biggest shakeup of regulation since 1997, scrapping the current banking regulator and handing the powers to a new authority within the Bank of England. The government plan will also create a Financial Policy Committee chaired by King, extending his remit over financial stability as well as monetary policy.
“The reform of financial-stability management in this country is disastrously misconceived,” Buiter said. “The first mistake is that the Treasury should be at the center of financial stability. It is now on the sidelines.”
Another former policy maker, Sushil Wadhwani, said the central bank’s governing board should have more power as policy makers get control over financial stability.
“It’s important to make sure that the court is given more powers, especially if” the central bank is “becoming more powerful, to prevent an accountability deficit,” Wadhwani said at the hearing at the Treasury Select Committee. “We must to do everything in our power to make sure there are sufficient checks and balances.”
‘Irrelevant’
Buiter, who is Citigroup Inc. chief economist and said he was speaking in a personal capacity, told the hearing that the Bank of England’s board is “irrelevant and should be abolished.” He said the bank’s shareholder is the U.K. Treasury and that the “board of directors is you,” referring to the committee chaired by lawmaker Andrew Tyrie that scrutinizes the central bank.
Asked by lawmakers what areas the committee should focus on in any inquiry into the central bank, Wadhwani said they should look at the collapse of Northern Rock Plc, and whether monetary policy should have “leaned against the wind” before the crisis.
He also noted questions about the central bank’s economic forecasting models.
“It was very odd that they were running a forecasting model with no role for bankruptcies and no role for credit constraints,” he said.
Source: http://www.bloomberg.com
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