Chancellor may wrest powers from BoE

by Gill Montia

Story link: Chancellor may wrest powers from BoE

The Chancellor of the Exchequer, Alistair Darling, is reported to be considering plans to remove certain powers from the Bank of England in the event of another crisis in the banking system.

Such a move could allow the Chancellor to take control of all decisions during an emergency similar to the Northern Rock crisis, when there was a run on the mortgage bank.

The Treasury could make decisions on issues traditionally the remit of the Bank of England, such as injecting cash into the money markets and acting as lender of last resort.

However, if powers are transferred to the Treasury and even if they are only for use in a crisis, the Bank’s role of working to control of inflation without political interference would be compromised.

Mervyn King, the Governor of the Bank of England, is currently in a difficult position because of recent press reports that he is frustrated at delays in the implementation of a new guarantee scheme to protect funds in bank or building society accounts, up to £100,000.

The Governor and his deputy, Sir John Gieve, will be appearing before the Commons Treasury Select Committee this week and MPs will no doubt be questioning them both on proposed reforms to the financial system and the extent of the Bank’s lending to Northern Rock.