Membership of court of directors

Part of Bank of England and Financial Services Bill [Lords] – in a Public Bill Committee at 9:45 am on 9 February 2016.

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Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury 9:45, 9 February 2016

May I say what a pleasure it is to serve under your chairmanship, Mr Wilson? I will speak to clause 1 and why it should stand part of the Bill before dealing with the amendments.

The clause makes the deputy governor for markets and banking a member of the court of directors—an important position that is not currently a statutory member of the court. It also provides enhanced flexibility to add or remove a deputy governor or alter the title of a deputy governor, as well as the corresponding ability to make changes to the composition of the court, the Financial Policy Committee, the Monetary Policy Committee or the new Prudential Regulation Committee where a deputy governor is added or removed. Those important provisions will simplify the governance of the Bank.

Following the expansion of the Bank’s responsibilities through the Financial Services Act 2012, a deputy governor for markets and banking was appointed with responsibility for reshaping the Bank’s balance sheet, including ensuring robust risk management practices. That important position is currently filled by Dame Minouche Shafik, who is not a statutory member of the court. We have talked about regional diversity this morning, but she ticks many boxes in terms of other forms of diversity, having been born in Egypt, worked a lot in America and being a British citizen. The clause amends the Bank of England Act 1998 to make that deputy governor a member of the court, ensuring equal status for all the Bank’s deputy governors and simplifying the Bank’s governance structure.

It should be noted that the power to add or remove a deputy governor will not permit the Treasury to remove a deputy governor or change his or her title while that deputy governor is in office. The measure will ensure flexibility for future need. At present, changes such as the creation of the new position of deputy governor for markets and banking can only be effected through changes to primary legislation. Instead, as a result of the clause, the Government will in future be able, by order and after consulting with the Governor, to adjust the size and shape of the Bank’s senior management team to meet future requirements—for example, to bring in new expertise if that proved to be necessary.

The hon. Member for Bassetlaw asks why we are changing the number of non-executive directors on the court. To be clear, that change is not being made by the Bill. The Bank of England Act 1998 requires up to nine non-executive directors, and following retirements there are currently seven non-executive directors on the court. A smaller board will be better for the Bank. The strong view of the Bank’s non-executive chair, Anthony Habgood, is that a smaller board makes for more effective challenge and accountability of the executive. When there are fewer non-executive directors, each member has greater opportunity to pose questions to executive members and to debate with them. A larger court might encourage a round table of individual speeches, rather than enabling effective back-and-forth discussions with and challenge to the executive.