Former Bank of England policy maker Adam Posen said Governor Mervyn King exerts too much power that goes unchallenged by officials at the central bank.
Supervision of the governor and other executives by the central bank’s court was “very lax,” Posen told lawmakers in Parliament today. He spoke during an unprecedented “debriefing” on his time on the bank’s Monetary Policy Committee, which ended in August.
“There was a very strong culture that if the governor and/or the broader bank executive made a decision and dug in their heels, there was no point in challenging them,” Posen said. “That was the widespread belief of the court, of many staff in the bank and some external members of the MPC.”
Posen highlighted a disagreement on his view that the Bank of England should widen its focus of asset purchases beyond gilts, a clash that led him to complain to the central bank’s supervisory board. He also referred to the “mess” surrounding the introduction of the Funding for Lending Scheme, a credit-boosting plan whose development in secrecy by the governor prompted a letter of protest by Posen and colleagues.
On the asset purchases, “I complained directly to a couple of members of court, saying the governor is insisting we should not do this, I don’t think that is fair or right that the governor can just say that,” Posen said. “I was told by court we cannot do anything about that until the governor leaves.”
Abdication of Responsibility
Posen said he replied that this was “an abdication of what court should be doing” and that “no one should have that sway.”
“I was told, ‘sorry, that’s the way it is,’” he said. “The same thing happened when I said that to members of the bank’s executive.”
The U.K. Treasury was also unwilling to challenge the governor, Posen said.
“The current and previous chancellor wanted to see strong monetary easing and wanted at least contemplated alternative asset purchases,” but were unwilling to take on an independent central bank, he said.
“But an independent central bank isn’t the same as one individual being able to block discussion,” Posen said.
King faced a revolt in June when he shut out policy makers from the FLS plan. Posen, along with Monetary Policy Committee members Ben Broadbent, David Miles, and Martin Weale, wrote to King after finding out he and key aides were privately designing the program.
“Part of the reason there was such a mess, a misunderstanding and lack of communications with the broader MPC when the FLS proposal came through was because there were all these incredible machinations going on between Treasury and the bank executive to get this through,” Posen said. “Therefore, we couldn’t all know about it, we couldn’t all gang up on him, it had to be done delicately.”
“I was quite furious at the time -- not at the governor -- he was advocating what he thought was right,” Posen said. “It was at the people around Governor King and at the Treasury and the court who let him get away with that.”
Posen, 46, left the MPC in August and took over as head of the Washington-based Peterson Institute for International Economics this month. The U.S. citizen led the charge for the Bank of England to restart quantitative easing during his three years at the MPC. Since his departure, he has expressed concern that Bank of Canada Governor Mark Carney will have too much power when he takes over from King in July.
With the Bank of England adding control of financial regulation to its monetary-policy role, Posen said today that the governor should be more of a chairman than an executive and delegate more responsibility to his deputies.