Duncan’s Economic Blog

Tories on the BOE

Posted in Uncategorized by duncanseconomicblog on March 24, 2009

I just read David Cameron’s speech on financial regulation.

I don’t fully follow it. I am especially bemused by the fetishism of the role of the Bank.

Gordon Brown took away from the Bank of England the power to regulate the overall level of debt in the economy?

That’s why with the Conservatives, the Bank of England will be back and we will restore its role in regulating the level of debt in the economy.

We will put the Bank of England back in charge of regulating the overall level of debt in the economy, and allow it to make judgements on what is sustainable and what is not.

I speak from an apparent position of complete ignorance here, I only worked there for a couple of years and my knowledge of economic history may be failing me… but when exactly did the Bank have this power? Seriously, I would be very, very curious to know.

Also how is this that different from the Bank’s current ‘core purpose two:

Core Purpose 2 – Financial Stability
Financial stability entails detecting and reducing threats to the financial system as a whole. Such threats are detected through the Bank’s surveillance and market intelligence functions. They are reduced by strengthening infrastructure, and by financial and other operations.

That aside I especially enjoyed learning that the FSA neglected

entirely a bank’s business model and what they were buying, at what price and with what debt.

So I just want to clarify, the party of free markets now wants a regulator, I assume the BOE, to authorise each and every purchase on any given banks’ balance sheet? We’re going to need a lot of regulators…


4 Responses

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  1. tory boys never grow up said, on March 24, 2009 at 4:45 pm

    The Bank of England did use to have the power to control the level of debt in the economy – unfortunately it was one of the first things the monetarist hyenas took away in 1980 when they removed the “corset” and decided to rely solely on monetary policy for macro-economic management. On the brightside it could be seen as the Tories eventually renouncing Thatcherism and monetarism after 29 years – now that really would be progress.

    Of course Cameron does not address how the Bank of England should strike a balance between its two objectives of managing debt and inflation – personally I’d rather like some democratic involvement as to how that balance is struck. Also doesn’t show much historical understanding – one of the reasons why the World took so long to come out of the Great Depression was the attitude taken by Central Bankers in this regard – and now Cameron wants to hand all the powers back to them.

    Also very confused on tripartite arrangements – shuffling of deckchairs and responsibilities isn’t necessarily the right way of co-ordinating government, financial and regulatory policy and management. The fact is there has to be a tripartite relationship between those elements – like it or not – there are good reasons both as to why duties need to be segregated and why there needs to be co-ordination – but moving everything to the Bank isn’t the answer – it didn’t work when Banking Supervison was the poor realtion in the Bank – and BCCI and Johnson Matthey was the evidence.

    Also very quite on his friends in the hedge funds – one of the problems with asset price bubbles is that they have been driven by leveraging of risk by hedge funds and others which are outside the regualtory net at present.

    Also seems to forget that regulators have other roles such as consumer protection – lets forget about all those people who have been missold mortgage and endowments, the general spivvery of many so called IFA’s and an investment management community that hardly understand the basic concepts of good corporate governance.

    Overall – I’d give it a D/C- if it were presented by an A level economics student

    • duncanseconomicblog said, on March 24, 2009 at 5:12 pm

      TBNGU – I hadn’t considered the corset. Although to be fair that was controlled ultimately by the Treasury in pre-independence days and used (as a sensible) tool of macro-economic management rather than a way of ensuring financial stability.

      I fully take our points on banking regulation being the poor cousin of monetary policy, it was certainly the feeling when I was at the Bank.

      The Torise do seem to be going down a ‘leave everything to the Bank’ route. Apparently monetary policy alone should be allowed to heal the economy whilst the Bank (at the same time) ensures that the banks are all ok. There is a huge potential for conflict between these aims. I can easily imagine a scenario whereby the economy requires lower rates but the Bank worries that lower rates might destabilise the banking system. What is it meant to do then? That’s why fiscal policy has a role.

      • yorksranter said, on March 25, 2009 at 12:05 pm

        Cameron has been going on about this since October, Back then I baptised it the Camorset.

  2. Will M said, on March 25, 2009 at 9:16 am

    If only the Labour Party had something competent to say, this poor imitation of a political party that David Cameron is ‘leading’ would dissapear into dust.

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