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Bank of England needs to prevent group think, former deputy governor warns

The Bank of England needs to encourage a new culture that allows staff to
“challenge” senior figures to prevent potentially damaging “house views”
developing, a former deputy governor has urged.

   Picture inside the cuppolla at the side of the Bank of England.
   The Bank needs to allow more challenge from junior staff Photo: Julian
   Simmonds
   Philiip Aldrick

   By Philip Aldrick, Economics Editor

   12:32PM GMT 02 Nov 2012
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   Comments Comments

   Sir John Gieve said the failure of economic policy before the crisis at
   the Bank and other institutions across the world was largely the result
   of “group think” that needs to be stamped out.

   His comments at Fathom Consulting’s Monetary Policy Forum echoed those
   made in three reviews into the Bank’s recent performance released
   today.

   They found that “there appears to be some tendency for [staff] to
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   Sir John, who was deputy governor for financial stability until 2009,
   said: “The biggest errors of economic policy were before the crisis in
   allowing the boom to develop. They were the result of a remarkable
   degree of group think – not just in the UK.

   “That was a problem in the Bank, as it was in the US Federal Reserve
   and the European Central Bank. We need to redouble efforts to challenge
   orthodoxy in these institutions.”

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   His words amounted to a call to arms for the Chancellor to ensure the
   right governance structures are put in place before the next Governor
   of the Bank takes over in June. Andrew Tyrie, chairman of the Treasury
   Select Committee, has called governance at the Bank “defective”.

   To stamp out group think, Sir John said the Bank should adopt the
   reviews’ proposal that it publish more detail on its economic
   forecasts.

   “How do you bring challenge into a hierarchical institution? One way of
   doing that is to publish more detail on the forecasts. Transparency on
   how they see the economy developing would be helpful in freeing up the
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   to avoid house views developing.”

   One of the three reviews criticised the Bank’s error-ridden forecast
   record and suggested it publish the details of its outlook, such as the
   household savings rate and the output gap, to allow economists to
   challenge its assumptions. Eric Britton, a director at Fathom, said:
   “That should be out there and discussed – the way they are thinking
   about the world.”

   Sir John welcomed the reviews’ suggestion that matters could be brought
   up with the Court of the Bank, a group of independent directors who
   oversee the institution. He the Court should play “a stewardship role
   ... and assess whether blinkers are coming down ... and whether the
   architecture is working right”.

   However, Charles Goodhart, a former member of the Bank’s rate setting
   committee, told Fathom’s event that group think in the Bank has been no
   worse than other central banks and criticised the media’s mistaken
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