At the time, the macro-monetary and financial stability arms of the Bank rarely crossed or co-ordinated. The monetary policy side dealt with the economy, at a macro level. The financial stability side dealt with financial firms, at a micro level. One had a bird’s eye view, the other a worm’s eye view. But the bird and the worm rarely socialised. The Bank’s macro-economic brain was largely detached from its micro-supervisory hands.
You needed only to visit the Bank’s restaurant building in the early 1990s to spot this difference. On the ground floor was both a wine bar and a pub. If you visited the pub on a Friday you would spot the economists, probably in knitwear. If you visited the wine bar you would see the bank supervisors, probably in tweed. Beer and wine do not mix and nor did the beer and wine-drinkers. It was probably just as well there were no systemic crises at the time requiring these two tribes to co-ordinate their analysis and actions.
The bank failures of the 1980s and 1990s contributed to the decision to strip the Bank of responsibility for supervising financial firms, soon after monetary policy independence. The two decisions were linked. Separation, it was said, avoided reputational contamination of monetary policy from financial firm failure.
This, however, came at one obvious cost: it severed, institutionally, any link between the micro and macro, the brain and the hands. This would come back to haunt, not just the Bank but the world, a decade later.
The Global Financial Crisis had laid bare the costs of separating finance and the economy, the micro and macro – a separation that had also been a feature of the Bank in the past. Crisis needed to be the catalyst for change, forging a link between the Bank’s analytical brain and its regulatory hands.
And so it was, with the creation of a new policy body, the Financial Policy Committee (FPC).
Thirty years on, the transformation in the policy-making structures and technologies for financial stability are every bit as great as those for monetary policy. An entirely new system of macro-prudential regulation is now in place, fusing together the micro and macro, the economic and the financial. Through the FPC and PRC, the Bank’s brain and hands are now synchronous. Beer and wine now mix just fine and the jumper-with-tweed-jacket combination is the height of policymaking fashion.
In 2012, the Queen and Prince Philip visited the Bank. My colleague Sujit Kapadia used the opportunity to answer the Queen’s question soon after the crisis – “Why hadn’t anyone seen it coming?” Sujit set out the reform steps taken to avoid a repetition. The Royal couple took, I hope, a degree of reassurance. On the way out, the late Prince Philip turned and said: “Oh, just one last thing – don’t do it again”. I think the institutional framework now in place gives us a realistic hope of making good on his request.

*1:Prudential Regulation Committee。

*2:cf. ここ