Duncan’s Economic Blog

Some of my best friends are central bankers

Posted in Uncategorized by duncanseconomicblog on July 24, 2009

It’s not that I have anything against central bankers, I mean some of my best friends are central bankers, but… I just don’t want them in charge of regulating individual institutions.

Paul Myners, who I have a lot of time for (and Tom has even more), is making a lot of sense. Talking about the Osborne’s planned reforms:

“They have misjudged the competence and culture of the Bank of England,” Lord Myners told City A.M. “The Bank is a very academic institution. It is not actually about doing things.”

OK, Myners is a government minister but he’s not the only one saying this.

According to a senior City banker with ties to Tory politicians, there is indignation at Mr Osborne’s suggestion that “markets regulation could be combined with the Takeover Panel and Financial Reporting Council to streamline the number of regulators and create a powerful markets regulator”.

Both bodies have significant standing in the City and the banker said the Tory plan was unveiled with no prior consultation with those bodies.

“No conversation was had by anybody in the Tory party with one of those bodies,” he said.

“It has severely damaged the ‘thinking man’s view’ of the Conservative party in the City,” he said.

Today Sir Andrew Large, former Deputy Governmor for Financial Stability of the Bank, writes:

To my mind the architecture of which institution does what is secondary, yet the Conservatives appear to have fallen into the trap of thinking that altering the architecture will deliver a better outcome. The fact is there is no perfect supervisory architecture.

So I am not convinced that to split the FSA and put supervision squarely into the Bank is wise or necessary, or that it will deliver a better result than the improvements under way. Changing architecture involves real risks and the burdens of migrating roles. Besides this, the consumer improvements suggested by the Conservatives do not require splitting the FSA in two. Finally, is this the right time to experiment – for the second time in 12 years – with the architecture?

 

Yesterday, to underline the point about the Bank being ‘bookish’ rather than ‘market savvy’ , MPC Member Andrew Sentance made some comments on quantitative easing, minutes after the successful auctioning of £5bn of gilts.

His remarks raised expectations in financial markets that the Bank might be ready for a sustained pause in its injections of cash into the economy through the purchase of government bonds.

Scott Thiel, head of European fixed income at BlackRock, said: “This is one of the biggest single gilts transactions of all time, and the Bank jolts the market with significant market-moving information only minutes after the deal has been sealed.”

Mr Sentance’s comments irked government officials. One said: “The problem with the external members of the Bank of England is that they live in this cocooned, separate world and do not consider how they might move the markets.”

Like I say, some of my best friends are central bankers but…

2 Responses

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  1. John said, on July 24, 2009 at 12:11 pm

    Sounds very market savvy to me – someone less market savvy would have blabbed before the auction, rather than afterwards!

  2. Will M said, on July 25, 2009 at 5:22 pm

    Where are these (other?) thinking men who are thinking about voting Conservative? Is there some way I can herd them in to the Lib Dems so we could engineer a coup?


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