As had been the case for many years, the executive directors on the Court continued to be heavily outnumbered by the non-executives, as usual by this time coming from a reasonably broad range of backgrounds – including, in 1970, industry (Pilkingtons, English Electric), food (Cadbury Schweppes), mining (Rio Tinto) and of course trade unionism. Three notable recent appointments were Sir Richard Thornton of Barclays (the first time one of the Big Five was represented on the Court), the economist Sir Eric Roll (two years after he failed to become governor) and one of the big beasts of post-war Britain, the National Coal Board’s chairman Lord Robens. The last made his mark more than most non-executives, provoking in December 1968 ‘a rather lively meeting of the Court’ (according to Cecil King’s inside source) by ‘saying that he didn’t see why directors of the Bank should be kept in the dark while all those gathered at Basle were given the true figures of our reserves’. Robens generally pushed hard for more information to be given to the Court, as well as for a streamlining of procedures; and by 1977 he would be able to tell the Old Lady that in his view the Court had at last become more akin to the board of an industrial company.30
In the bigger day-to-day picture, though, more significant was the vexed issue of the role of the executive directors, of whom under the terms of the 1946 legislation there were only four at any one time. Despite the fact they had been in existence for almost forty years, these executives still remained somewhat to the side and not fully integrated into the Bank’s workings, certainly in terms of responsibilities. The direct contrast was with the time-honoured chief cashier, who initialled every memorandum to the governor and from whom permission was required, in theory at least, before a member of staff was permitted to talk to someone outside the Bank. The decisive moment – albeit a turning-point that failed to turn – came in September 1969 when the management consultants McKinsey & Co initially wanted to recommend a much expanded role for the executive directors, before O’Brien persuaded them to tone down that advice. Summarising their meeting, McKinseys’ Alcon Copisarow noted that the governor had been worried such a recommendation ‘might adversely affect the morale of department heads since it could appear to carry with it a downgrading of their position’. And: ‘You felt it might overburden Executive Directors by involving them in detailed departmental activities. We agree that these would be undesirable consequences, and fully recognise the vital contribution that department heads – and the Chief Cashier in particular – make to the policies and operations of the Bank … We have therefore modified our organisational recommendations in this area.’ Accordingly, the report formally presented to the Bank that autumn, while indeed recommending that executive directors ‘should exercise effective supervision over major policy decisions, departmental budgets, the initiation of new programmes, and selected senior staff appointments’, at the same time made it clear that ‘we do not suggest that Executive Directors should become involved in the detailed administration of departments’. Nor did the report insist on any great urgency:
Clarifying the role of Executive Directors should be an important medium-term objective for restructuring the organization of the Bank. We recognise that a change of this kind is difficult to implement immediately. Furthermore, the appropriate degree of authority that Executive Directors need to exercise differs between departments. The aim, therefore, should be to move towards this objective of direct executive responsibilities gradually and flexibly.
O’Brien had been bold to commission McKinseys in the first place, not least because of the tricky politics of their being an American firm, but this reassuring sight of the long grass was what he wanted to see. Or as on one occasion he observed to Morse, with some force, ‘Never forget that the Chief Cashier is the third man in the Bank.’31
There was only limited progress too when it came to the quality and depth of the Bank’s economic analysis. ‘This is the sort of analysis which any uninformed person could make from reading the newspapers,’ scornfully commented a Whitehall mandarin in early 1961 on the latest diagnosis that Cobbold had sent to Macmillan and his chancellor about the darkening economic situation. Several factors contributed to this general shortfall: an aversion to modern economic thought on the part of Maurice Allen, economic adviser before becoming an executive director (1964–70); an even deeper aversion to economics generally (in terms of that discipline’s place in the Bank) on the part of Mynors, so that it was not until after the end of his deputy governorship that the Bank felt able in 1965 to create a bespoke Economic Intelligence Department (EID); an almost atavistic loyalty to practice over theory, to market touch over everything, with Allen proud to describe monetary policy as ‘psychological warfare’; the fact anyway that monetary policy as such was wholly secondary to the paramount, even obsessive priority of defending sterling, so that by 1968 the Bank did not yet publish a single monetary statistic; and a slowness to realise that, with the rise of high-class financial journalism, the Bank could no longer claim sole in-the-know authority and needed to put in some hard mental graft. Of course, the odd individual recruitment of economists did make a significant positive difference, notably those of McMahon in 1964 (‘one felt like a fish out of water,’ he recalled), Andrew Crockett two years later, Leslie Dicks-Mireaux in 1967 and Goodhart soon afterwards. Even so, as late as 1975 it was clear from the review of the EID conducted by Eddie George (who had joined the Bank in 1962) that a certain shortfall persisted. Putting aside the department’s already increasingly specialist Economic Section, he observed that although a growing number of staff ‘are recruited with specialist qualifications, notably in economics, they are recruited basically for their all-round acceptability to the Bank as a whole, and they do not typically specialise in any particular area or type of work when they arrive’. Accordingly, he went on, ‘some sense that the balance has been too much in favour of generalism is shared by many of those interviewed, both within the Department and outside’. And altogether, he concluded, ‘the dominant impression to come out of the Review is of E.I.D. at an uneasy stage in a process of transition from a narrow statistical-informational role to a wider role embracing also financial and economic assessment and policy advice’.32
Was there also a transition taking place in the Bank/City relationship? The answer, by 1970 anyway, was yes, but only up to a point. ‘If I want to talk to the representatives of the British Banks, or indeed of the whole financial community, we can usually get together in one room in about half-an-hour,’ Cobbold had famously told the Radcliffe Committee in 1957; and to a large extent the City still remained a village in which the Bank was the acknowledged head. In 2012 a former acting deputy governor, Brian Quinn, would somewhat wistfully evoke that ‘stable, clubby environment’:
All recognised banks reported to the Bank and came into the Discount Office once a year for a discussion of their returns. There was no unambiguous legal definition of what constituted a bank. It was what the Bank said it was and any prospective new entrant had to be judged fit, usually after having operated with only its own capital for a period of a year or more.
The Discount Office received and monitored banks’ financial accounts and, more importantly, kept its fingers on the pulse of what was going on in the City generally. Informal information – including gossip – played an important part in this process. Talk of any unusual activity or questionable behaviour was passed on to the Bank, which, if the rumours had some foundation, would have a word with the relevant management, usually sufficiently early to anticipate problems. Much depended on confidence and trust, on pursuing real and not imagined problems, on not disclosing sources, and on how the action taken by the Bank, though not publicised, could adversely affect reputation. That mattered a great deal.
It was a world, added Quinn, of a banking oligopoly, of tightly controlled credit, of generally stable interest and exchange rates, of little risk-taking, of limited movement of staff around the City (‘switching from Barclays to Lloyds, for example, was unheard of, if not treasonable’)
and of standards of behaviour being ‘monitored and enforced by unwritten consent, with the Bank unquestionably the final arbiter’. ‘Of course,’ he concedes, ‘there were occasional transgressions, and the Bank’s views were not always accepted without protest, but challenging its role as headmaster of the City carried its own risks.’ In the Discount Office itself, Hilton Clarke’s successor was James (Jim) Keogh; and the story is told of his decisive intervention on learning that the discount house Gerrard & National were buying a firm of undertakers (apparently on the grounds of synergy – ‘something else we can do with our hats’). ‘You are not going to do this,’ he curtly informed its buccaneering Kenneth Whitaker, ‘you are not going to do anything like it, get rid of it now!’
Nevertheless, the traditionally rather feudal relationship was changing. Partly this reflected the fact that the City itself was starting to change, especially with the rapid emergence of the Euromarkets and the accompanying arrival of American banks, mainly unsupervised by the Bank. But the bigger cause was growing scepticism on the City’s part as to whether the Bank – as ultimately, especially since 1946, an arm of the Treasury – could effectively represent and further its interests. ‘One instance of a conflict between a set of City institutions and the Bank of England recently was the conflict between the clearing banks and the Bank of England specifically in regard to their ability to meet the ceilings set on their lending,’ the Financial Times’s M. H. (‘Fredy’) Fisher told the Select Committee in February 1970. ‘There everyone knew – the Bank knew, the clearing banks knew – that what they were up against was not the Bank of England but the Chancellor. This was apparent all the way through and became immediately apparent once the thing came out into the open.’ Another journalist, Anthony Harris of the Guardian, elaborated:
The present ambiguous situation is obviously unsatisfactory in some ways. The Bank tries to act in both capacities. The most clashing one is not an argument with the Government, but technically over its management of the gilt-edged market, since it became less concerned simply to stabilise the market of any time, and more concerned to maximise the amount of public lending taking place. In such a case the ambiguity comes out very acutely. One is not very clear whether the Bank is acting as the guardian of marketability of gilts or as sales agent of the Government. The two worlds to some extent clash. I do not see an escape from this, but it is causing a lot of uneasiness at the moment.
Later that month, also giving evidence, O’Brien insisted that his ‘prime responsibility’ was to act ‘as agent of Government, to carry out a variety of functions as efficiently as possible in line with Government policy’; and accordingly, ‘I am not the representative of the City but I do represent City interests where I think it is right and proper to do so.’ He was, in short, the City’s ‘discriminating advocate’.33 Given the Bank’s continuing insistence that it mediated the square mile’s representations to government, as opposed to allowing it direct access, it was not hard to predict further tensions ahead.
What about the Bank/government (aka Bank/Treasury) relationship? ‘It would be very helpful to us,’ was the message in June 1969 from O’Brien to Al Hayes at the Fed ahead of the Select Committee’s fact-finding visit to New York, ‘if you could emphasise the difference between your position and ours. We have none of your independent authority and therefore no independent right of action.’ In his own evidence, naturally, O’Brien emphasised the necessity of the governor of the day retaining his ‘superiority’, in comparison to civil servants, ‘in the degree of independence’. So too for the Bank as a whole, which according to him (in effect following the Cobbold line to Radcliffe) required operational autonomy if it was properly to fulfil its ‘independent advice function’ to government. Certainly there was a degree of self-respect involved. ‘Central bankers are persons in their own right,’ declared O’Brien when asked about how much he consulted ministers before going to meetings at Basle. ‘They have views about the future of the universe, particularly in so far as monetary and economic affairs are concerned, and no central bank governor would be prepared to go to such a meeting in such a forum merely as the puppet of someone else; he goes in his own right. After all, he is a central bank governor.’ Certainly also, the Bank did continue to enjoy a quite significant degree of day-to-day independence, an independence founded largely on its necessarily highly technical management of the money market (including through its relations with the discount houses), the gilt-edged market and the foreign exchange market – quite apart of course from its key supervisory-cum-macro-economic role in relation to the banking system. In practice, moreover, it tended to be – notwithstanding the snub to Cromer during the March 1966 election – the dominant party when it came to interest rate decisions. ‘I said that the Chancellor had been near to overruling the Governor on a cut in Bank rate,’ recorded Cairncross in April 1968 after a conversation with the Bank’s Jeremy Morse. ‘J. pointed out that it was the Bank’s rate and therefore could not be changed without their agreement. I said that this was going too far. He then said that both sides had a veto on moving and that it was usually the Bank that wanted to move. I had to agree that I couldn’t recall a specific case where the Bank had been pushed into cutting the rate against its will (or even into increasing it when it didn’t accept the need to do so).’
Yet in a larger sense it is hard to avoid the impression of the Bank as somewhat marginalised during the increasingly Keynesian and corporatist 1960s, as demand management flourished and new centres of policy-making influence came to the fore, including the trade unions, the CBI and the National Economic Development Council (‘Neddy’). ‘It has reached my ears that you are shortly having a cocktail party for employers and the TUC,’ Cromer wrote almost forlornly in 1963 to John Hare, the minister of labour. ‘With considerable temerity I am writing to ask you whether it might be possible for me to receive an invitation. The reason for this rather odd request is that, in the normal course of events, I have virtually no opportunity of meeting the TUC members and on this occasion I have a particular reason for wanting to contrive a meeting with one or two individuals …’ It was also arguably a problem that O’Brien had spent his career working his way up at the Bank, which perhaps inevitably meant that he tended to view the permanent secretary at the Treasury as his opposite number whereas say Cobbold and Cromer (but not Catto) had instinctively cultivated a more direct relationship with ministers. In any case, by the turn of the decade the feeling at the Bank seems to have been one of some frustration – a frustration that McMahon eventually gave vent to in July 1971, writing a note for O’Brien that apparently applied to recent years as well as 1971 itself:
A number of us have been concerned for some time about the relationship between fiscal policy and monetary policy. For example, in the run-up to the Budget, the following is hardly a caricature of what happens. The broad magnitude of fiscal action is agreed in the Budget Committee, while the economic forecasts are still being made. Reference to the possible role of monetary policy at this stage can be made by the Bank representative, but only in the most general terms and in any case they are not taken very seriously. Then, when the national income and balance of payments forecasts are complete, detailed work goes on in the Treasury, to which we are not privy, settling particular tax changes agreed upon. At a late stage, when the Budget speech is already into its third or fourth draft, the financial forecasts are completed, throwing up certain implications for money supply, the appropriate net sales or purchases of gilt-edged to the public for the year ahead, etc. It is then decided at a Treasury/Bank meeting that since it would be absurd for the authorities to try to operate a monetary policy which was inconsistent with the aims the Chancellor was trying to achieve by his fiscal policy, monetary policy should be broadly accommodating.
In short, ‘the present situation, whereby monetary policy is effectively a residual in total policy, is very unsatisfactory’; and near the end McMahon referred with some bitterness to the way the Treasury ‘keep u
s at arm’s length in devising their packages’.34
Till Time's Last Sand Page 58
