Bank of England officials hits back over accusations of ‘groupthink’ among staff
Martin Taylor also defended the FPC against calls for it to be abolished.
A Bank of England official has hit back over accusations of groupthink among senior staff, saying that members need to have shared skills and experience in order to follow debate and spot “fatal” flaws.
Martin Taylor, an external member of the Bank’s Financial Policy Committee (FPC), said MPs on the Treasury Select Committee (TSC) were “quite reasonably” preoccupied with the risks of groupthink, but cautioned against misinterpreting “unanimity” for a lack of “vigorous debate”.
“Groupthink is not the failure of external members to argue with the Bank staff or stand up to the Governor because they are too idle, too cowardly or too thick. Let me assure you that this is very much not what goes on.
“But if it did, it would not be groupthink. It would be spinelessness,” Mr Taylor said in a prepared speech for the Institute of International Monetary Research on Tuesday.
The former Barclays chief executive said that groupthink resulted from “shared assumptions”, which he admitted “may be closely correlated with the skill, experience and knowledge required to make someone a useful member of the FPC.”
However, he stressed that without those shared skills, staff would fail to understand the committee’s work let alone identify its shortcomings.
“A colleague who couldn’t follow the debate would be unlikely to spot a fatal flaw,” he said.
“We are all attached to the idea that diversity in its various manifestations provides one form of immunisation against this condition. It may, and the FPC could do with being more diverse.
“But in the context of groupthink, the type of diversity needed must balance differences in underlying assumptions with shared skills and experience,” Mr Taylor said.
His comments come amid concerns about a lack of diversity at the Bank of England, with former Treasury Select Committee chair Andrew Tyrie saying in September that groupthink was partly to blame for the last financial crisis.
More recently, the Treasury has come under fire by current TSC members, who have raised concerns over a potential lack of ethnic and gender diversity when recruiting for key positions at the Bank of England.
In his speech on Tuesday, Mr Taylor went on to defend the very existence of the FPC following calls for it to be dismantled in a speech by Lord Brian Griffiths earlier this year.
He said Mr Griffiths claimed the FPC would fail to prevent another financial crisis and criticised it for wielding policy tools – like those affecting the housing market – that are “too politically sensitive” for an unelected body to be trusted with.
“We may not be able to avoid crises, but we certainly ought to be able to prevent the financial system from amplifying a crisis as it did in 2008,” Mr Taylor said.
Secondly, he added: “It is the FPC’s responsibility to act in such a way as to ensure that anything it may undertake in regard to housing – a sector that has been at the very centre of financial instability throughout recent British history – is equally accepted by parliament and public.”
Mr Taylor concluded by saying that he trusted the “serious and unglamorous work” of the FPC would continue and that regulation has yet to overburden the financial system.
“No, I don’t believe financial regulation has gone too far,” he said. “No way.”