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Criticism of Bank over Brexit should end unless impropriety is proved Criticism of Bank over Brexit should end unless impropriety is proved
(about 1 month later)
By the end of the Treasury select committee’s session, Mark Carney looked as if he could happily punch his chief tormentor, the Tory MP Jacob Rees-Mogg. It was the umpteenth time Carney had been called upon to defend the Bank of England’s honour over how it acted during the referendum campaign, and the governor was irritated. “Those who cast it [the Bank’s independence] into question should consider their motivations and their judgments,” said Carney pointedly.By the end of the Treasury select committee’s session, Mark Carney looked as if he could happily punch his chief tormentor, the Tory MP Jacob Rees-Mogg. It was the umpteenth time Carney had been called upon to defend the Bank of England’s honour over how it acted during the referendum campaign, and the governor was irritated. “Those who cast it [the Bank’s independence] into question should consider their motivations and their judgments,” said Carney pointedly.
That was a swing at Rees-Mogg and those Tory grandees who had accused the Bank of peddling “phoney forecasts” and “scare stories” to help the remain campaign. Their number includes two former chancellors, Lords Lawson and Lamont, and two former Tory leaders, Lord Howard and Iain Duncan Smith.That was a swing at Rees-Mogg and those Tory grandees who had accused the Bank of peddling “phoney forecasts” and “scare stories” to help the remain campaign. Their number includes two former chancellors, Lords Lawson and Lamont, and two former Tory leaders, Lord Howard and Iain Duncan Smith.
Carney should calm down – but he deserves sympathy in this squabble. Judged on public comments, he and the Bank behaved properly. It would have been absurd for Threadneedle Street, charged with promoting monetary and financial stability, to somehow pretend that the referendum was not happening. The vote raised big questions for both remits. The Bank was obliged to assess the likely consequences.Carney should calm down – but he deserves sympathy in this squabble. Judged on public comments, he and the Bank behaved properly. It would have been absurd for Threadneedle Street, charged with promoting monetary and financial stability, to somehow pretend that the referendum was not happening. The vote raised big questions for both remits. The Bank was obliged to assess the likely consequences.
Related: Mark Carney to hand notes of pre-Brexit vote talks with chancellor to MPs
The Bank judged Brexit to be the biggest domestic risk to financial stability. It said there could be a “material slowdown in growth” and even a technical recession, and it warned that interest rates could rise if falling sterling threatened to produce “a notable rise in inflation”.The Bank judged Brexit to be the biggest domestic risk to financial stability. It said there could be a “material slowdown in growth” and even a technical recession, and it warned that interest rates could rise if falling sterling threatened to produce “a notable rise in inflation”.
One could dispute elements of that analysis – a rise in interest rates was always unlikely – but, in its general thrust, the Bank’s assessment was almost humdrum. It was judging risks, not making concrete forecasts. The central question is whether the Bank dishonestly skewed its analysis to suit George Osborne and his colleagues. There is zero evidence to suggest so.One could dispute elements of that analysis – a rise in interest rates was always unlikely – but, in its general thrust, the Bank’s assessment was almost humdrum. It was judging risks, not making concrete forecasts. The central question is whether the Bank dishonestly skewed its analysis to suit George Osborne and his colleagues. There is zero evidence to suggest so.
As Carney argues, the Bank’s work and conclusions were overseen by two full policy committees, including outside members. If there was a stitch-up, a lot of people would have had to participate or be fooled. It seems unlikely.As Carney argues, the Bank’s work and conclusions were overseen by two full policy committees, including outside members. If there was a stitch-up, a lot of people would have had to participate or be fooled. It seems unlikely.
The only reason to overturn that view is if the governor engaged in nudge-winkery with Osborne. Thus it is good that Carney has agreed – albeit only after a sharp prod from the chair, Andrew Tyrie – to release to the committee notes of his private conversations with the chancellor. If there is a smoking gun, that is where it will be found.The only reason to overturn that view is if the governor engaged in nudge-winkery with Osborne. Thus it is good that Carney has agreed – albeit only after a sharp prod from the chair, Andrew Tyrie – to release to the committee notes of his private conversations with the chancellor. If there is a smoking gun, that is where it will be found.
If none is discovered, however, it is time for this tedious row to be laid to rest. On the available facts, the Bank just did its job.If none is discovered, however, it is time for this tedious row to be laid to rest. On the available facts, the Bank just did its job.
Could Italy wipe out ordinary savers?Could Italy wipe out ordinary savers?
The cracks in the Italian banking system are wide. The International Monetary Fund judges non-performing loans to represent 18% of total loanbooks. The need for more capital is urgent.The cracks in the Italian banking system are wide. The International Monetary Fund judges non-performing loans to represent 18% of total loanbooks. The need for more capital is urgent.
But is the rescue process not well understood in the EU these days? You clear the decks by wiping out the bondholders, the folk who everybody swore would never be bailed out again. The cleansing process allows fresh capital, attracted by the removal of a layer of liabilities, to rush in.But is the rescue process not well understood in the EU these days? You clear the decks by wiping out the bondholders, the folk who everybody swore would never be bailed out again. The cleansing process allows fresh capital, attracted by the removal of a layer of liabilities, to rush in.
Well, that’s the theory. The problem in Italy is that following the rules is almost bound to create fresh turmoil. The banks have sold about 30% of their bonds to retail investors – ordinary savers. If the nest eggs of tens of thousands of Italians are evaporated on the orders of the EU, the consequences are unknown.Well, that’s the theory. The problem in Italy is that following the rules is almost bound to create fresh turmoil. The banks have sold about 30% of their bonds to retail investors – ordinary savers. If the nest eggs of tens of thousands of Italians are evaporated on the orders of the EU, the consequences are unknown.
In one plausible scenario, the prime minister, Matteo Renzi, could lose October’s referendum on constitutional reform and be forced to resign, paving the way for the Five Star Movement to make big gains on an anti-euro ticket. Thus there is a desperate attempt to bend the rules and find a way to bail out the banks, and their bondholders, anyway.In one plausible scenario, the prime minister, Matteo Renzi, could lose October’s referendum on constitutional reform and be forced to resign, paving the way for the Five Star Movement to make big gains on an anti-euro ticket. Thus there is a desperate attempt to bend the rules and find a way to bail out the banks, and their bondholders, anyway.
Related: IMF warns Italy of two-decade-long recession
For now, the EU is officially appalled. Jeroen Dijsselbloem, the head of the Eurogroup council of finance minsters, says the rules are strict and creditors must face losses “otherwise everything we have agreed in Europe will be questioned”.For now, the EU is officially appalled. Jeroen Dijsselbloem, the head of the Eurogroup council of finance minsters, says the rules are strict and creditors must face losses “otherwise everything we have agreed in Europe will be questioned”.
Dream on. There is no way Italy will be forced to wipe out ordinary investors. The EU will find a fudge to avoid a fresh political crisis. The rulebook will be ignored and state-aid rules by-passed. That is how the game always works. But Dijsselbloem is right on the moral of the tale: faith in EU promises about bank rescues will drop yet another notch.Dream on. There is no way Italy will be forced to wipe out ordinary investors. The EU will find a fudge to avoid a fresh political crisis. The rulebook will be ignored and state-aid rules by-passed. That is how the game always works. But Dijsselbloem is right on the moral of the tale: faith in EU promises about bank rescues will drop yet another notch.
May should name and shame on payMay should name and shame on pay
Call Theresa May: pay for the bosses of big European banks rose 9.6% last year to $10.4m (£7.9m), according to an analysis by the consultants Equilar and the FT. The incoming prime minister, and now opponent-in-chief of excessive boardroom pay, arrives in Downing Street too late to name and shame those UK bankers who contributed to the haul. But, when the time comes, that will be a useful tactic. Theorising is nice, but criticism carries more force – and deterrent value – when it’s personal and comes from the PM.Call Theresa May: pay for the bosses of big European banks rose 9.6% last year to $10.4m (£7.9m), according to an analysis by the consultants Equilar and the FT. The incoming prime minister, and now opponent-in-chief of excessive boardroom pay, arrives in Downing Street too late to name and shame those UK bankers who contributed to the haul. But, when the time comes, that will be a useful tactic. Theorising is nice, but criticism carries more force – and deterrent value – when it’s personal and comes from the PM.