This process of regular and systematic assessment, based on the economic and financial data, is unimaginably different from the erratic reaction to financial market disturbances which characterised the conduct of monetary policy too often in the more distant past. And the reflective, interactive, debate within the Monetary Policy Committee is very different too from the sometimes exaggerated advocacy of a particular viewpoint which inevitably crept in to the Ken and Eddie show during which the Bank usually had at most an hour in which to persuade a sometimes reluctant Chancellor! The present arrangements allow us to explore, without initially taking hard positions, alternative possible interpretations of the data and their implications; and those discussions capture far better than before the uncertainties inherent in the conduct of monetary policy. It is, I think, how monetary policy really should be made. Transparency and accountability With operational independence comes - quite rightly in my view - even greater transparency and public accountability. The minutes of the two-day meeting at which that decision is taken, together with a summary of the information presented by the staff, are published in the week after the following meeting. Those minutes also record the individual votes of each member of the Committee. Beyond this, we publish a regular assessment of monetary policy - including a forecast of inflation over the two-year period that we believe is relevant, given the lags between policy actions and inflation outturns - in the Bank’s Quarterly Inflation Report.
Such involvement would not normally involve the central bank in significant financial risk. But in more difficult - and mercifully rare - situations, where the failure of one institution could bring down other - otherwise viable - institutions, the central bank may need to consider acting in the role of “lender of last resort” to the failing institution, against poorer quality, less liquid, assets which might expose the central bank to financial loss. The key phrase here, of course, is “where its failure could bring down other otherwise viable - institutions”. The central bank safety net is not there to protect individual institutions from failure. It is there to protect the stability of the financial system as a whole. In the absence of a serious systemic threat, the right course would normally be to allow the institution to fail. If any institution felt that it could rely on being bailed out if it ran into real difficulty, that, too, would introduce “moral hazard”, encouraging excessive risk-taking and financial fragility in the system as a whole. There can be nothing automatic about “lender of last resort” assistance - and, when it is provided, it should always be on the most onerous terms that the borrower can bear: it is not provided to protect the shareholders who should be looked to first. Nor is it there to protect the management.