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The three Reviews cover:
The Governors of the Bank of England (BoE), Sir Mervyn King, Charlie Bean and Paul Tucker, said: “We welcome these three Reviews. The Reviewers have given us an independent perspective on some of the key challenges the Bank has faced in responding to the financial crisis and have given us a great many ideas to consider that could improve the Bank’s performance. We are starting programmes of work to evaluate the recommendations and to plan changes. We will report regularly to Court. Our initial, high-level response to the Reviews is set out below.”
Plenderleith Review into the provision of Emergency Liquidity Assistance in 2008/9
The Review highlights many useful operational lessons that will help BoE to ensure that all future Emergency Liquidity Assistance (ELA) operations are as effective as that in 2008/9, which the Review concludes “can be judged to have achieved its purpose effectively” and was “an essential plank in the structure of official support that was able in the end to return the financial system to a degree of stability".
The principal objective of many of the recommendations in the Review is to build on that experience to maximise the Bank’s readiness for any future ELA, both in identifying problems early and in the conduct of operations. BoE shares that objective and will use the ideas in the Review to meet it.
Winters Review into the Bank’s framework for providing liquidity to the banking system
BoE agrees with the finding of the Review that the Sterling Monetary Framework in place before the crisis was insufficient to meet its financial stability objectives. The Review also notes that, following the very extensive changes made during the crisis, the Bank’s framework is now “robust and broadly fit for purpose". Nevertheless, BoE does not wish that process of improvement to stop and this Review offers the Bank a platform for the next stage of development. It offers BoE a great many options to consider.
Several recommendations are aimed at reducing and ideally removing any reluctance of banks to access the Bank of England’s liquidity facilities, particularly the Discount Window Facility (DWF). BoE shares that objective. As the Report argues, BoE will need to balance that against the need to avoid making it too easy for banks to take excessive liquidity risks. The Review makes helpful suggestions for striking that balance, including the introduction of some form of up-front ‘insurance premium’, as well as enforced regular usage of liquidity facilities by banks. BoE will pursue these ideas further.
Stockton Review into the Monetary Policy Committee’s forecasting capability
The Review finds that the “forecast process and associated forecasting tools employed by the Bank in support of its monetary policy decisions are sound". Nonetheless, given the challenges experienced by forecasters during the financial crisis, BoE will consider carefully the ideas for improvement in the Review. The first step in the BoE work programme will be to consult the Monetary Policy Committee.
The Review calls for more ‘entry points’ for a range of alternative views into the forecast process, particularly those that diverge from the consensus. BoE will work up plans for developing the expertise of staff, engagement with outside experts, and ultimately what the Review summarises as “mechanisms capable of acting as a trigger for a fundamental reassessment of the outlook".