Court in the middle

Overseeing the Bank of England will never be easy

Poor oversight looks an occupational hazard for the Bank of England (BoE). Newly released minutes suggest the Court of Directors, which is supposed to keep tabs on the UK central bank, didn't do a great job during the 2007-9 financial crisis. While the 2015 Court looks much more fit for purpose, the challenges of effective central bank supervision can't be reformed away.

The Court's weak performance was hardly surprising. The 16 outside members were not obviously supposed to challenge Mervyn King, then both the central bank governor and the Court's chair, about his response to the collapse of UK lender Northern Rock. Besides, too many members of this too-large group had conflicts of interest. The knowledge that the minutes of their meetings would not be published reduced the pressure to act.

The Court has been strengthened. It now has half the number of non-executives and may shrink further. Minutes of meetings are, as of 2013, published with a six-week delay. The central bank governor is no longer the chair, and there is an independent team to advise on bank performance. As a non-BoE insider, King's replacement Mark Carney is a better transparency tsar.

Yet the private sector-style oversight doesn't guarantee a trouble-free future, and not just because private non-executives routinely screw up. While central banks are supposedly non-political, they are ultimately public institutions, responsible to governments and the court of more or less informed public opinion. There is only so much any board can do.

Only half of the world's central banks even bother with a BoE-style supervisory board, according to the Bank for International Settlements. It is not clear what such boards are supposed to accomplish, beyond monitoring the normal issues of organisational governance: fraud, bureaucratic inertia, cost-effectiveness and the like.

If the members are knowledgeable, they are liable to share the groupthink of the central bankers they are trying to police. If, as in the UK, they are generalists, they don't know enough to help much in a crisis. In case of another failure of the British financial system, the government shouldn't count on the improved Court's judgment.