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January 23, 2012 12:07 am
One of the Treasury select committee’s biggest gripes, made during its investigation into Bank of England accountability, has been the Bank’s refusal to undertake an internal review of its performance during the financial crisis.
Even if the Bank had agreed to a review, however, those conducting it would find a dearth of evidence on how its most senior policymakers came to their decisions.
Meetings of the bank’s rate-setting Monetary Policy Committee are recorded and notes are taken so that the minutes can be prepared. But the tapes and notes are destroyed as soon as the minutes are finalised a few weeks later.
The practice has existed since the Bank was granted independence to set interest rates in 1997.
The Bank is taking on greater responsibility for financial stability, but the recordings of its interim Financial Policy Committee meetings are also being destroyed.
Monetary policy and regulation are, at present, not covered by freedom of information rules. So even if the tapes were kept, the public could not obtain them.
The Bank’s destruction of records follows lessons learned from the US Federal Reserve. In 1993, congressman Henry Gonzalez, then chairman of the House banking committee and a frequent critic of the opacity of the US central bank, called on the Fed to release transcripts of the meetings of the rate-setting Federal Open Market Committee going back to the late 1970s.
The FOMC had voted in 1976 to destroy recordings and transcripts once the minutes were signed off. But to the chagrin of the committee, transcripts based on the tapes had been kept. “Gonzalez had a field day,” said Louis Crandall, an economist at Wrightson ICAP.
On the back foot, the Fed offered to publish transcripts with a five-year time lag.
In Britain, some people believe that concerns over the chance of MPC transcripts being made public one day would make some policymakers more inhibited and others grandstand.
Others believe that transcripts would be of little use because of the free-flowing nature of the discussions and inherited knowledge among committee members. A transcript was produced in the early days of the committee but made little sense.
The Fed’s experience suggests that debate could become stilted if changes were made. Vincent Reinhart, chief US economist at Morgan Stanley and a former director of the Fed’s division of monetary affairs, said: “Historically, participants had made off-the-cuff remarks and listened to colleagues. Now it’s not unknown for people to sit there with their heads down looking at their prepared remarks.”
But policymaking may have benefited from the greater focus.
Marvin Goodfriend, a professor at Carnegie Mellon University in Pittsburgh, Pennsylvania, who attended FOMC meetings from 1993 to 2005 in his role as chief monetary policy adviser at the Federal Reserve Bank of Richmond, said: “At the Richmond Fed, we worked harder to improve our statements, and that enriched the discussions.”
Current officials may wince at the failure to spot impending disaster, but Mr Crandall believes that the Fed’s 2006 transcripts, released this month, show why they are so valuable.
“The self-congratulatory tone is testament to the complacency that will settle in when you go nearly 15 years with one mild recession,” he said. “The transcripts may help future policymakers avoid falling into the same trap.”
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