BoE’s Kohn and Taylor foresee FPC divisions

Decisions on the Bank of England's (BoE) financial policy committee (FPC) are likely to be more contentious in the future, two of its members said today.

Both Donald Kohn and Martin Taylor, external members of the FPC, said the current consensus was unlikely to last, particularly when the committee begins to calibrate its tools.

Taylor said: "I agree with Don; we are not opposed to voting and I think when we come to calibrating numerical things like the CCB [counter-cyclical capital buffer], it is quite likely some will not want to raise it, some will want to raise it more than others – and we should say so."

The FPC currently operates on a model that seeks to establish consensus, but if no agreement can be reached, decisions go to a vote.

Kohn said the committee should always "strive for" consensus, but he would not "rule out" the possibility of going to a vote on future measures. He emphasised that in the process of creating the FPC's framework in recent years, consensus was more important.

The FPC members were speaking at a hearing of the UK's Treasury Select Committee, held to vet their reappointment to the committee.

The consensus view is made public via the FPC's record, an anonymised account of meetings similar to the monetary policy committee's minutes, and produced by the committee itself. FPC members are expected to not speak publicly about anything discussed in meetings that is not laid down in the record.

Members of the Treasury Committee were concerned the need for consensus restricted debate. "If you look at the history of financial stability blunders, it is fair to say a misplaced consensus tends to be part of the reason," said Andrew Tyrie, who chairs the Treasury Committee.

Kohn responded to say the FPC had external members to help ensure "groupthink" did not "take over" its members. However, he conceded there was still "a risk" of drawing mistaken conclusions.

Both Kohn and Taylor stressed there was still vigorous discussion on the committee. Taylor said the record reflected the "richness" of that debate.

Tyrie remained unconvinced, and pressed Taylor on whether he thought the consensus, and its reflection in the record, was helpful to the Treasury Committee in holding the FPC accountable. "It strikes me it does not enhance accountability," Tyrie said.

"I hope you don't feel we are being obstructive. I don't think we are," Taylor said, to which Tyrie replied: "Not yet."

In a statement following the meeting, Tyrie recommended the BoE's Court of Directors conduct a review of the FPC's code of conduct, which governs how members may air their dissent. "The FPC needs to be transparent about how it reaches its decisions," he said.