Treasury Committee
Oral evidence: Appointment of Anthony Habgood as Chair of the Court of the Bank of England, HC 451
Wedneseday 25 June
Ordered by the House of Commons to be published on Wednesday 25 June 2014
Members present: Mr Andrew Tyrie (Chair); Steve Baker, Mark Garnier, Stewart Hosie, Mr Pat McFadden, Mr Brooks Newmark, Jesse Norman, Teresa Pearce, Mr David Ruffley, John Thurso
Questions 1-84.
Witness: Anthony Habgood, Chairman of Reed Elsevier and Whitbread, gave evidence
Q1 Chair: Thank you very much for coming to give evidence to us this afternoon, which at the moment relates solely to the question of your appointment to the chairmanship of Court. Can I begin by asking you: what do you think the Court of the Bank should be called?
Anthony Habgood: Before I answer that, if I could thank you for sending out the list of questions to me, which you did two or three weeks ago. I have to say I found them very helpful, in terms of preparing myself for starting next week as well as in terms of preparing for this meeting. So thank you for doing that.
I am very straightforward in respect to your question. I would prefer the Court to be called “the Board”, like any other board in any other institution.
Q2 Chair: Something akin to that—certainly with the need to get rid of the word “Court” to replace it with the word “Board”, whether it is prefixed with “Supervisory” or “Oversight” is a secondary consideration—was one of our recommendations in the 2010 report of this Committee. No doubt you have had a look at the other recommendations. Do you agree with the main recommendations we made there?
Anthony Habgood: First of all, I would say I think the addition of the word “Supervisory” was a pity because I think it—
Chair: We have dealt with that and we want to get on to the bits that you agree with.
Anthony Habgood: All right, we will move on to the others. I agree with a lot of it, and I agree with it in terms of your size proposal on the whole for the board.
Chair: Which was to reduce it.
Anthony Habgood: Which was to reduce the size. In my experience, I have found that boards of 10 or 11 are a lot more effective than boards of 13-plus, so in principle having a board of 10 or 11. Of course that has been one of the big trends that have gone on in the private sector. Over the last 20 or 30 years there has been a reduction in the size of boards towards that sort of level, I think recognising that.
Q3 Chair: The size, fine, we can park that. I just want to get through the main headings. We proposed a unitary board. You support that.
Anthony Habgood: Yes, absolutely.
Chair: You support the view that the board should have responsibility for all those activities that are not already with a policy-making committee.
Anthony Habgood: I do, yes.
Chair: You support the view that the Bank should have the ability to conduct retrospective views, both external and external, and consider the merits of the reviews when they are available.
Anthony Habgood: I do, yes. I would support those views particularly from within a unitary board. Sometimes you take them completely away from the executive, if the executive was in some way implicated, but normally I would expect those reviews to take place within the unitary board.
Q4 Chair: Have you taken a look to see whether you think the current Court has the staff, resources and the character to perform the tasks that we have just described?
Anthony Habgood: A unitary board has the entire resources of the Bank at its disposal, so the answer to that has to be yes. Now, whether it has been used that way. One of the reasons that I think that the word “Court” has become a little bit dysfunctional is that sometimes it seems to be referring to “the board” in total and sometimes it seems to be referring to the non-executive directors, and I find that confusing. As a unitary board person, I like to look at the board as being the entire thing and then it has the entire resources of the Bank at its disposal. It also has the ability to bring in outsiders as necessary, outsiders either to support an internal review or outsiders to do an outside review with internal support or without internal support. All flavours are available there, so it seems to me the resources are there.
Q5 Chair: It is refreshing for the Committee to find itself on the same page as you; that you are on the same page as the Committee anyway—
Anthony Habgood: No, that is the other way round.
Chair: —and in actual fact sitting pretty much alongside where the Banking Commission came on a number of these issues, and also, of course, the pre-legislative scrutiny committee, the joint committee that was chaired by Peter Lilley some years ago, which also examined a number of these issues. That is very helpful.
Anthony Habgood: Thank you.
Q6 Mr Ruffley: You describe the Oversight Committee as being similar to meetings of non-executives in the absence of executives. The Oversight Committee is a subcommittee of Court with very limited responsibilities. Do you think it serves its purpose in its current form? What is the point of it?
Anthony Habgood: I suppose what I am recommending there is that the non-executives would meet after a board meeting to discuss the board. I would say that is similar in concept to the Oversight Committee, because the Oversight Committee is a meeting of the non-executive directors, but I wouldn’t be looking at that as a subcommittee. My practice, which I have been doing now for many years, is after every board meeting you have the non-executives meet together and say, “What do you think about that? Are there some things there that we need to check up on? Why was so and so so defensive when somebody asked the question?” whatever it might be, so that you can have those discussions and can then take those forward if necessary.
Q7 Mr Ruffley: Do you think there are any amendments to the setup that could improve accountability?
Anthony Habgood: The Bank has been through massive change, hasn’t it? It has doubled or tripled in responsibility and it has merged into a huge organisation.
Q8 Mr Ruffley: I understand that. Do you think the Oversight Committee should continue as it is?
Anthony Habgood: I haven’t yet been to a meeting of the board so it is hard for me to say that. I am just saying my instincts are to have a unitary board that would be followed by a meeting of the non-executives on an every time basis. That is how I run boards myself now and that is how I think best practice has evolved. Like many of these things some of that has come out of the United States, these sorts of meetings.
Q9 Mr Ruffley: How are you going to ensure that the Bank responds to all requests from this Committee for factual information?
Anthony Habgood: I know this Committee recommended that reasonable requests should be complied with, and I have to say—depending of course on what the definition of “reasonable” is—that seems to me to be perfectly appropriate.
Q10 Mr Ruffley: Have you familiarised yourself with any examples where this Committee has asked for information and not received it?
Anthony Habgood: No, I have not.
Q11 Mr Ruffley: Now we asked for the Court minutes from the time of the financial crisis three years ago, and we have not received those minutes.
Chair: Three years ago, but in fact for the crisis six years ago.
Mr Ruffley: I know when the crisis was but we asked for them starting with this Parliament three years ago. I think that is what I said. At the time of the financial crisis we asked for those minutes three years ago. We have not received them. Is that something you have a preliminary view on? We are talking about the Court minutes during the time of the 2008-09 financial crisis. What conceivable reason is there for this Committee not having those released to us by Court?
Anthony Habgood: I am not familiar with that situation obviously, but it seems to me the only reason not to do that is because those minutes were taken on the presumption that they were not going to be made public. I do not know what is in those minutes, and I do not know whether there are things in there that for some reason cannot be made public but, in the absence of that, it does not seem to me to be unreasonable that you should request those.
Q12 Mr Ruffley: I notice you say it is not unreasonable for us to request it. You don’t say not unreasonable for the Court to release them.
Anthony Habgood: I thought I had said earlier that reasonable requests I was—
Mr Ruffley: It is a statement of the obvious that it is reasonable for us to ask but, on the principle of releasing minutes, you are not saying you would do anything different from any other member of Court when we have asked this question.
Anthony Habgood: I thought what I was saying was that, in the absence of there being reasons not to, then it does not seem to me to be unreasonable to do so, if that is not too contorted.
Mr Ruffley: That is helpful.
Q13 Chair: Of course the issue there is that there are many documents that may sit around in the files of public bodies, which were not intended for publication but which a crisis has made necessary should be given a public airing—not least in this case, for example—to give us greater confidence that these accidents are less likely to happen in future or any mistakes that have been made. I am asking you: do you appreciate the fact that a document was put together without people’s contemporaneous understanding that it would be published in a public body is not a bar to its publication?
Anthony Habgood: It is not a bar to its publication, but I think you should take some care as to what that content is and what the benefit is versus the potential danger of publishing it.
Q14 Chair: Bearing in mind we are talking about the biggest financial crisis in British history and the Bank of England’s response to it—
Anthony Habgood: Indeed.
Chair: —do you think there is a very strong presumption in such cases for the maximum possible transparency?
Anthony Habgood: Yes, I do, with the proviso again that it has to be with a view to protecting some interests there as well when they were not assuming that there would be publication. But I have no knowledge of what is in those minutes.
Chair: I am a bit concerned I know, and that is why it is helpful to have a hypothetical discussion before you take this job.
Anthony Habgood: Yes.
Q15 Chair: You described interests, isn’t it those very interests that Parliament might want to see at work?
Anthony Habgood: Certainly if they are in any way perfidious, yes, but I am not suggesting they would be.
Q16 Chair: No, but the fact that there might have been interests can only emphasise the need for transparency.
Anthony Habgood: I am not disagreeing with you that more transparency, per se, is better than less transparency.
Chair: Okay. Well we will leave it there on that subject, but it is an extremely important one on which this Committee has been—some might argue—unreasonably patient.
Q17 Mr McFadden: Good afternoon. You referred to the questionnaire that we sent you before you came that asked some questions. One of those was about the alleged manipulation of the foreign exchange market and what has been done by Lord Grabiner. You said that, on appointment, a priority of yours would be to see that that investigation comes “to a successful conclusion”. How would you define “successful conclusion”?
Anthony Habgood: Just to clarify, I have now attended three Oversight Committees. I haven’t attended a board yet because the timing of the one that I was planning to attend was moved at the last minute so I could not attend it. But I have attended three Oversight Committees and I have seen this process going on a little bit, albeit as an observer of course and not in any way involved. But to my mind a successful conclusion would be to clarify whether or not the Bank or some members of the staff were involved in some malfeasance in the foreign exchange markets.
Q18 Mr McFadden: But it is broader than that, isn’t it? The reputational risks for the Bank here—
Anthony Habgood: Are huge.
Mr McFadden: —are so large that it is not just about whether the Bank was involved, it is about whether it was aware or should have been aware based on what it was told. Do you agree with both of those?
Anthony Habgood: I do agree with both of those. But the first thing you need to establish is whether there was any otherwise—
Mr McFadden: Whether there was any manipulation?
Anthony Habgood: Yes. If there was any manipulation in which the Bank was involved is the first question.
Q19 Mr McFadden: But you agree that the reputational survival of the Bank—and this is based on a broader look than being involved in manipulation—
Anthony Habgood: Yes.
Mr McFadden: —it also around knowing about it or being given information that should have alerted the Bank to it.
Anthony Habgood: I am sorry; I understand what you are saying. Yes, I agree with you entirely. I agree with you.
Mr McFadden: It is a broader look than actual involvement in manipulation.
Anthony Habgood: If the Bank knew it was going on you mean and did not—
Mr McFadden: Yes.
Anthony Habgood: Yes, that is important as well; absolutely.
Mr McFadden: Or indeed was given information that should have made it aware it was going on.
Anthony Habgood: One can go into exercises on the conditional and the subjective further and further but, yes, in theory I agree with you.
Q20 Mr McFadden: In his Mansion House speech a couple of weeks ago, the Chancellor said that these allegations of benchmark manipulation were critically important to investigate properly and to, if necessary, make regulatory changes because of London’s position as a global financial centre. Do you agree with that?
Anthony Habgood: Yes, absolutely.
Q21 Mr McFadden: Do you think the Bank was quick enough to appoint Lord Grabiner after these allegations came to light?
Anthony Habgood: The Bank was very quick to appoint an external firm of solicitors, so an external study of it. The chairman was then informed pretty quickly after that, as I would have expected. Obviously I was not there so I do not know, but just looking at it it seems to me that the sequence of events was pretty good. Now, should they have known something before they knew it? That is another question of course but, given the timing that that came out, the appointment of Travis Smith was timed appropriately; pretty much immediately as I understand it. Again I am not there at this point but my understanding is that.
Q22 Mr McFadden: You have a broad range of responsibilities, this phrase about conducting the affairs of the Bank as Chairman of the Court. In your list of priorities, where would you see dealing with these allegations and seeing the work that Lord Grabiner has been asked to do through to a successful conclusion? Can you sum up for us where you see that in your priorities?
Anthony Habgood: Very high. There are different sorts of priorities if you are going into a new job obviously. One is you have to learn about the organisation; another is you have to try to get the thing set up so that you feel it is set up appropriately for taking the thing forward; another is dealing immediately with hot issues, of which this is one. This is an ongoing study that Lord Grabiner is taking very seriously, which is up and running, so—
Q23 Mr McFadden: You have had a long corporate career and you have given us your CV and so on. Have you ever been involved in a big internal investigation like this in your previous corporate life?
Anthony Habgood: The answer to that is yes, but it depends. As big as this with such a big potential reputational damage? Perhaps, perhaps not. But I have certainly been involved in some big investigations in which reputation was very high on the list.
Mr McFadden: Okay. Thank you.
Q24 Chair: Are you happy with the fact that the solicitors were appointed before the incumbent found out?
Anthony Habgood: Before the incumbent what, sorry?
Chair: Before the current Chairman of Court found out.
Anthony Habgood: I do not know whether that was the case or not.
Chair: I thought that was what you just said.
Anthony Habgood: I am sorry, then, I misled you if I led you to believe that that had happened.
Chair: You do not know whether that was the case or not.
Anthony Habgood: I do not know whether that was the case or not. Those things I suspect were very much contemporaneous.
Chair: Yes, but something being contemporaneous, before or after there is a big difference between the two.
Anthony Habgood: Let me tell you what I would expect in that sort of circumstance. I would expect the organisation to let me know immediately they knew, and then we would agree what we were going to do.
Q25 Chair: You mean let you know about the crisis or problem?
Anthony Habgood: Yes.
Chair: Then you would be participating in the decision.
Anthony Habgood: Yes.
Chair: And if necessary you would take leadership for the decision.
Anthony Habgood: If necessary you would take leadership. That is pretty rare in my experience but it can happen of course.
Chair: It is for the exceptional cases that we have chairmen.
Anthony Habgood: Indeed.
Chair: Of boards rather than courts.
Q26 Mr Newmark: I want to focus a little bit more on structure. You note in your written evidence that the Bank structure is not simple. When you look at the MPC, the FPC and the PRA, you observe they are all linked differently to the Bank with different remits. How do you square the circle where there are differences and different objectives with this concept of a one bank, and what do you not like and what would you change?
Anthony Habgood: There are a lot of aspects to that.
Mr Newmark: I know.
Anthony Habgood: Let me launch and you can redirect me. It doesn’t bother me that something is a subsidiary of the Bank and something else is a committee and something else is a committee somewhere else. That happens in my life all the time; something is a division of this or a committee here or a subsidiary there. What matters—and what I think makes it more difficult—is when you have statutory separation at the top. If you are trying to merge two organisations in my experience you normally start at the top and work down. You don’t start at the bottom and then hold the top apart. In my Reed Elsevier experience that is how they started. A Dutch company and a British company merged but the boards were kept separate to start with. The merger did not really work until the boards were banged together or the people on them were made very similar. I think that would be most people’s experience. If you are trying to merge something then merge it, don’t hold it separate. So that part is slightly awkward as I see it now and I suspect it makes the one bank merger more difficult. Do I—
Q27 Mr Newmark: Would you be looking to change that? Would you be looking to advise change in the names, in the structure, in the way they all tie up?
Anthony Habgood: I do not mind about the names but, yes, I think that—
Q28 Mr Newmark: Let’s just think of the structures. The FPC is a statutory subcommittee of the Court whereas the PRA is currently a subsidy of the Bank.
Anthony Habgood: No, indeed.
Mr Newmark: They are different relationships and there is more than just a name in that, so throwing it back to you when you come in. You have a great CV with huge experience running various other organisations. There are amazing traditions in the Bank of England. A lot of times there is resistance to change, which is what Mark Carney is trying to change himself and that is good. When I look at these different names, different structures and everything else, would you advise that there is some streamlining you could do or some consistency in the way each of these operate and relate to one another, given this idea of the one bank is the objective?
Anthony Habgood: I would certainly expect to have discussions with Mark on that issue, because I think both of us feel that there is some streamlining that could be done there. It is very early days for me to say anything, and some of that is in statute of course and some isn’t. Some of the things that are in statute are relatively easy to manage around and some are not, as I understand it. So, yes, I think by the look of it there are opportunities to streamline there. Again, I am looking at it from the outside. What do I know?
Q29 Mr Newmark: The thing is—as I am sure you know from your experience—when you get into an organisation the best time for change is doing things upfront. People like to sit back, observe and stuff. I guess if I am going to give any advice, if you have some thoughts if not sharing them with us, certainly subject to your appointment and everything, when you get in there it does certainly look as if there needs to be some change in streamlining if that is the objective.
If I can move on now. When you looked at the boards you said, “These added complexities make it all the more important that the Bank has a modern Board”. What do you mean by “a modern Board”?
Anthony Habgood: As I was saying before, corporate governance has evolved a lot over the last period of time. As I said in answer to the Chairman’s question earlier, I don’t think my recommendations are very different from the Committee’s, that one should have a somewhat smaller unitary board. I would add that then I would have the non-executives meet afterwards to satisfy themselves.
Q30 Mr Newmark: I am coming at it from a slightly different angle than the Chairman—which probably won’t surprise the Chairman—and one of the criticisms I have consistently had is that generally the Bank of England is not populated with enough industry practitioners, people who have a life outside of ivory towers and academia, theoreticians and stuff. Without meaning any disrespect to some of the great people that have obviously had those roles.
Anthony Habgood: No, absolutely.
Mr Newmark: With the abuses that we have found in the system, particularly in the past few years, having people who have more business in the real world who can deal with some of the challenges Pat McFadden was talking about with currency manipulation and so on. So I certainly look at two weaknesses: lack of industry practitioners and lack of women as well.
Anthony Habgood: I agree with both of those points. I think it is extraordinary that the current board of the Bank of England does not have a single woman on it. That is an abuse of the situation.
Mr Newmark: I think Andrea Leadsom, who used to sit here, would agree with you on that too.
Anthony Habgood: It is an abuse of that statement because Susan retired at the end of last month, so it has had one until just now. My own experience from elsewhere is that I have three women on the Whitbread board. I have three women on the Reed Elsevier board. If you will excuse me, Chairman, I ought to explain that because Reed Elsevier is two companies when we meet as a board I am talking about them together, which is a joint board of 10 people. That means the ratios won’t necessarily look the same if you look up Reed Elsevier plc. But I have three women on that board, and there is nothing magic about three but it is not a bad place to be just now I think. I would like to see the Bank get to that sort of level pretty quickly.
Q31 Mr Newmark: Would you say the lack of people with practical experience has also been a bit of a weakness in the past?
Anthony Habgood: I wasn’t on the board in the past so I cannot tell.
Mr Newmark: I know, but if you look at the CVs.
Anthony Habgood: If I look at the current composition of the board, I would say it has a lot of financial service knowledge and experience on it. It has relatively little general management experience. So, yes, I would say we should have some more general management on there and we should have some more women on there.
Q32 Mr Newmark: Great, okay. You might have answered this but my final question is: do you believe there should be a majority of external members on both the MPC and the FPC?
Anthony Habgood: I do not have a view on that. I have attended the two meetings of the MPC that come after the pre-meeting but I haven’t attended a full cycle yet. I have not attended any of the other committees yet. I intend to do that between now and later on in the year, but I—
Mr Newmark: I am not asking you to make a judgment on the individuals there today, just the principle of external members versus not. Do you think these boards should have a majority of external members?
Anthony Habgood: Well they aren’t boards, are they? They are policy committees, which is a bit different. In boards, yes, we have gone that way but on policy committees—
Mr Newmark: They are organisational units, let’s say.
Anthony Habgood: They are organisational.
Mr Newmark: They have an impact on what is going on. So going back to my original question, do you think a majority should be external or not?
Anthony Habgood: I do not have a view on that. The answer to that question is, no, because I do not have a view on it. From having observed the MPC, I will say that—as you will know better than I—the members of the MPC are not shrinking violets. They are not people who are going to get bullied because there is one more internal. My own experience before we went into all this corporate governance standardisation of, “You have to have at least as many externals as internals, leaving the chairman aside” and all that, was that if the external directors did not like something it did not happen, whether there were three of them or whether there was a majority.
Mr Newmark: Thank you.
Chair: Stewart Hosie. If I could possibly ask colleagues to be brief and if the replies can be brief, it will be very helpful, because a number of colleagues have chipped in in the last few minutes asking if they can also contribute. I apologise to you.
Q33 Stewart Hosie: No problem. In the December Court minutes they said that, in addition to the FPC’s statutory responsibilities, the FPC had received a number of commissions from other bodies. They included a request from the Treasury to look at financial stability implications of Help to Buy; the MPC to look at further guidance; a request from the Chancellor to conduct a review into the role of the leverage ratio. To what extent is it your job to stop mission creep within the FPC or the MPC?
Anthony Habgood: My understanding is, particularly with the MPC, that that mission creep is for the committee; it is not really for the board of the Bank. As you listen to those things, though, it seems to me that looking at leverage, looking at the Funding for Lending scheme, and what was the third one, I’m sorry?
Stewart Hosie: Leverage ratio.
Anthony Habgood: Leverage ratio. Again, those are all things that to me are very much in what I would expect the remit of the FPC to be, so I would not describe that as mission creep. If you are asking: is there political interference with the purity of the committees? I suspect there always will be some of that.
Q34 Stewart Hosie: I am not asking about political interference at all. This is simply a practical issue about the volume of work. You are right, at face value these three cases would all appear to be reasonable but in terms of the volume of work if you felt there was mission creep, that there were too many external commissions coming demanding things are done, would you have the ability and the confidence to say no to the Treasury or to say no to the Chancellor?
Anthony Habgood: Again, I think the board would have to be doing that. But, yes, if the board decides that either you need more resource or you have to say, “No, I can’t do everything”.
Q35 Stewart Hosie: As the chairman in a leadership position, if those underneath perhaps lack the confidence and said, “Yes, we can do; yes, we can do” in an attempt to be helpful, I am sure, you would have the ability to say, “I’m sorry, you’re not doing that. We don’t have the capacity to do that” or to ask for more resource?
Anthony Habgood: I think there is a bit of a trap in what you are saying there, in that I would not see myself as a lone ranger. The purpose of a chairman is to lead the board. It is for the board to come to that conclusion. It may be the non-executives of the board. So I would try to make sure that was properly considered by the board, but if the board said, “No” then I am not going to run off and say, “Yes, but I disagree. I think that—”
Stewart Hosie: I think that is a better way of putting it, to ensure that these things would be properly considered and the work would not simply be undertaken if the board collectively felt that there wasn’t the capacity to do it.
Anthony Habgood: I feel comfortable with saying “Yes” to that question, to the best of my ability.
Stewart Hosie: That is helpful. Thank you.
Q36 Steve Baker: Mr Habgood, your CV is a tremendously impressive catalogue of strong leadership at the highest levels, so I wonder how you will find it to implement the one bank strategy, which has been drawn up by others.
Anthony Habgood: First of all, thank you for your complimentary remarks.
Steve Baker: I carefully avoided a “but” as I said it.
Anthony Habgood: Again, I don’t look it as me who is implementing that strategy. I would look it as the Bank implementing that strategy. I don’t take credit for the success of these companies that I have been chairman of. There have very strong, very able chief executives running it. Do I influence them a bit? Yes, probably a bit. Do I organise the board so that proper things are brought to that board? Absolutely. Therefore, do we hold the Executive to account through those boards? Yes, I think we do. But I would not say that I would implement that strategy. I would say that I would want to make sure that either all of or aspects of that came to the board on a regular basis, because to me the purpose of a board is to raise the game of the Executive. It is not to exercise hard power.
Q37 Steve Baker: If I may, because I am slightly conscious of time, just in terms of raising the game with the Executive, the Parliamentary Commission on Banking Standards concluded that the hierarchical structure and culture of the Bank could give rise to the risk of group think. How important do you think it is to guard against the risk of group think at the Bank?
Anthony Habgood: I have always thought it was important to guard against group think anywhere and, yes, I am sure it is. I haven’t seen evidence of group think. Mark is not somebody who will naturally engender group think either, but of course you have always got to be aware of that.
Q38 Steve Baker: In the last few weeks I have particularly pressed everybody we have interviewed on a set of ideas, which one might describe as capital based macroeconomics. I have to say I do not think that area of thought has been foremost in anybody’s mind. The current Governor did make a speech in New York where he referred to the “intertemporal misallocation of capital”. I don’t think—
Anthony Habgood: Sorry, he referred to?
Steve Baker: It is a technical term, the intertemporal misallocation of capital. I do not want to get into the technical term but I just observe this. The current Governor acknowledged the importance of that system of thinking but at the moment, as far as the people I have met—and I would not expect there to be—there does not seem to be any particular emphasis on that area. Now the strategy includes valuing diverse ideas and open debate, developing analytic excellence to tackle the most challenging and relevant issues. Would you think that in challenging group think it was important to have, not only in the research areas but also at the highest levels, a degree of familiarity with the broadest spectrum of ideas? The reason I say that is we are in this most extraordinary time for monetary policy. The previous Governor said of all the many ways of organising banking the worst is the one we have today. We could go on and quote and quote and quote. Would you look at whether or not some of these broader ideas about how money and banking can be structured might be brought to bear within the Bank?
Anthony Habgood: All I can say is that sounds very sensible but I am not in a position to say “Yes” or “No” to it. I think we are still in extraordinary economic times. Certainly in my business career the last seven years—I look at all this as starting in August 2007—have been quite extraordinary because you haven’t been able to rely on any business model or any trend continuing. They have been bouncing about all the time. It has been a very interesting time and, in that circumstance, it is important to consider as broad a number of business models as you can and views of macroeconomics and everything else.
Q39 Steve Baker: I am hugely encouraged and I hope you won’t mind if in due course we return to a similar question. Finally if I could ask, in advocating unity and ‘oneness’ the Bank’s strategic plan emphasises “the deep underlying connection between monetary and financial stability”, in your view would the Bank’s objectives of monetary and financial stability be more effectively achieved if the MPC and the FPC were merged?
Anthony Habgood: Merged? That is a big question for somebody who hasn’t joined the organisation. The MPC has been working well. It has some very specific goals and I think it is tried and tested. I would not be inclined to monkey with that too much while one still deep in the quest-
Q40 Steve Baker: Just a supplementary on that. You were talking earlier about the need to merge boards and what I detect here is that you are drawing a distinction between the governance of the organisation, from a managerial point of view, versus the technical functions. Is that a fair assessment?
Anthony Habgood: Yes, it is. To take that to the next stage I would certainly not expect to merge the MPC with the PRA. That would be ridiculous.
Q41 Mark Garnier: If I can endorse what Steve Baker said about your outstanding CV in terms of corporate governance, but can I perhaps bring in the “but” that Steve left behind, and the “but” is this: you note in your answers, “My experience is not in monetary and prudential policy; rather it is in overall management and governance”. You are going to be looking at an awful lot of stuff to do with monetary management and policy. Does that worry you at all?
Anthony Habgood: Does it worry me? No. I am confident that I can chair an organisation that can oversee that. At Reed Elsevier I think we have one of the largest big data operations in the world. I am not a big data person. It comes back to me saying, “I am not a lone ranger here”. You have to construct a board that can deal with those issues. If those who had hired me had found someone who had a lot of experience in those areas that they felt were suitable, might that be better? Well, that is for them to judge not for me.
Q42 Mark Garnier: You may have read this but I would not expect you to remember every word of every committee report that you would have read. The Treasury Committee Accountability of the Bank of England report, which was the twenty-first report of session 2010-12, so some time ago said, “We recommend that the Chairman in the future” of the Court of the Bank of England “have considerable experience of prudential or financial issues”.
Anthony Habgood: It is not negotiable for me, really. I cannot retread the last number of years.
Mark Garnier: No, but to a certain extent my challenge to you is: look, this is the position of the Treasury Committee. We are slightly worried. Going back to this report we wrote some time ago, are you going to be fulfilling the role perhaps that we described four years ago?
Anthony Habgood: You were also describing a close to full-time role and that is not what I signed up to here either. So there are some major differences there. What I would undertake to you is that if I feel I am not the right person—I haven’t got any pride, if you want to put somebody else into that position you are very welcome.
Q43 Mark Garnier: I think what I am looking for is how you can give us some sort of comfort that you can be in control of these things, perhaps more in terms of the Oversight Committee. The Oversight Committee has a function of keeping under review the performance of the Bank in relation to objectives and strategy. Those objectives for this purpose are the monetary policy objective and the financial stability objective. Clearly you cannot be the world’s leading expert on those things and be a very good corporate governor, but what I would be looking for in your answers is some sort of comfort that you would be able to understand what is going on enough to know how much you don’t know. There are a lot of people who think they know everything and clearly know nothing, and a lot of people who don’t know much but know how much they don’t know. Can you give me some comfort that you would be able to at least pick up if there was a problem and then know how to deal with it? How can you respond to that?
Anthony Habgood: I guess I do it by analogy. My history: as I say, I am not a big data person but we have been very successful in that area. I am not a property development person, but I think Whitbread has been one of the biggest and most successful property developers through this recession because we have been investing and creating jobs and everything else. One has to get to a level of knowledge but one also has to have a board that has people on it who have that knowledge, and you have to know enough to be able to ask the right questions.
Q44 Mark Garnier: Exactly, and do you feel there is enough technical expertise and competence on the Oversight Committee to be able to deliver that?
Anthony Habgood: I think there is but, as I said earlier, my preference would be for more of that work to be done in the board rather than by the non-executives. The non-executives in the board, so that it is done—
Q45 Mark Garnier: You would like to lift some of that out of the Oversight Committee into the board?
Anthony Habgood: What I am thinking is that the Oversight Committee and the board could meet obviously in parallel at certain times.
Q46 Mark Garnier: I will come back to my question: do you feel confident that there is enough expertise within the new structure?
Anthony Habgood: Within the board, yes, I think there is but it is early days for me to make that judgment.
Q47 Mark Garnier: Sure. Do you have a little bit of evidence of that to explain? Sorry, you have just said it is early days but what is giving you comfort at this stage?
Anthony Habgood: As I said a little while ago, of the current composition of the non-executives the majority are people who know and work or have worked in those areas. On the executives also there is a lot of experience of having worked in and around those areas. So, on the face of it, it looks to me as if there is that expertise.
Q48 Mark Garnier: A last question, if I may, Chairman? How would you know if the Oversight Committee or the board or both together were lacking in the expertise that was needed? How would you pick that up? Perhaps that is a general question about corporate governance, not necessarily about the Bank but—
Anthony Habgood: Yes. If you identified that you would go out and find somebody to put on the board that would fill that gap.
Mark Garnier: How would you identify that?
Anthony Habgood: Sorry?
Mark Garnier: How would you identify it?
Anthony Habgood: You observe the interactions and you feel the gap. I don’t quite know how to be more specific than that.
Mark Garnier: I will leave it there if I may, Chairman.
Q49 Chair: Getting up to speed: having been on the board of a public company for some time, being on the board of another company has a very large number of similar features, doesn’t it? You need to know a large number of the same things, whatever the company is doing. But the Bank of England is not like another company, is it?
Anthony Habgood: In some ways it is and in some ways it isn’t obviously.
Chair: It doesn’t have very many shared characteristics. It is a company and it has a balance sheet. It is a very, very different animal from anything you have chaired before, isn’t it?
Anthony Habgood: Yes, says he hesitantly, because I think every organisation is different. Does this have more differences? Yes, it probably does but it has an awful lot of similarities as well.
Q50 Chair: Let us move on from that. You have said that you need to get up to speed and get to know the institution, but you have also said—you said that to us today—that you think this could be done in one and a half to two days a week. Are you sure about that?
Anthony Habgood: My experience is of any number of positions. I have chaired six or seven organisations. I have been a director of many more. I have served under 18 other chairs over many years as a director knocking on towards 100, and I have been on public company boards I think for many more years than I have been alive. I have seen quite a few different structures. I have worked as a director under an executive chairman and a non-executive chairman. I have worked as a chief executive under a non-executive chairman. I have worked as executive chairman, and I have worked as a—
Chair: Okay. But I have asked you quite a specific question rather than a description of the CV.
Anthony Habgood: If I may, though, I do feel that the one area that I have felt the least comfort of, whenever I have come across it, is where you have had a full-time non-executive chairman. What I think that leads to is a muddle between executive chairman and non-executive chairman in many cases. That doesn’t have to be the case. The Bank does not need an executive chairman. That is for sure.
Chair: Mr Habgood, the question about the chairmanship that I was asking you was not that one.
Anthony Habgood: Sorry.
Chair: It was whether you would need more time than the one and a half to two days a week to get up to speed. I wasn’t asking whether once you are up to speed you could do it one and a half days. That will be a subsidiary question later, but do you think you can get up to speed in one and a half to two days?
Anthony Habgood: One has to spend the time one has to spend of course, and I have already spent quite a lot of time on this and I haven’t started yet. So, yes, is there more time in an initiation phase? Of course, but if it is systematically more than that it is neither what the brief called for nor what my pre-appointment discussions called for, nor what I have signed up for, nor what is in my experience the best sort of model for a non-executive chairman.
Chair: We might come on to pre-appointment discussions. Teresa Pearce.
Q51 Teresa Pearce: A recent FT article suggested that you are not afraid to be tough when required. Do you recognise that description of yourself and, more importantly, would boards you have worked with recognise that about you?
Anthony Habgood: I think they probably would but, as I said before, I don’t see a modern board as being about the exercise of hard power; very occasionally, but very occasionally.
Q52 Teresa Pearce: Hopefully it would not be necessary, but if you believed a member of the executive wasn’t performing how would you be tough then?
Anthony Habgood: Are you talking about Mark or are you talking about somebody else? Because it is different, I don’t want to go ad hominem obviously.
Teresa Pearce: No, I am certainly not talking about the Governor.
Anthony Habgood: You don’t want to go ad hominem.
Teresa Pearce: I wouldn’t dare.
Anthony Habgood: But it is different because if it is somebody else and they are on the executive they are reporting to him. So the first thing I would do is talk to him about it if I felt that way just as I would in any other organisation, which is why I said there are a lot of similarities I think. You would have an open discussion and say, “Look, I don’t get it with this guy”.
Q53 Teresa Pearce: So you wouldn’t be afraid to raise it and take action within your remit?
Anthony Habgood: I would not be afraid to raise it. When you say “take action” it is not my action to take. It is his action to take because he reports to him
Q54 Teresa Pearce: If you did raise it and no action was taken what would you do then? Would you continue to raise it? What would you do?
Anthony Habgood: You have to make a judgment, don’t you, as to how strongly you feel about it.
Teresa Pearce: Well, let’s hope that doesn’t happen.
Anthony Habgood: No, indeed, indeed.
Q55 Teresa Pearce: As far as the position goes, did you apply of your own accord or were you approached?
Anthony Habgood: I was approached.
Q56 Teresa Pearce: What selection process did you go through? Did you have any psychometric tests?
Anthony Habgood: I didn’t have any psychometric tests, no.
Teresa Pearce: I just wondered.
Anthony Habgood: Perhaps I should have.
Q57 Teresa Pearce: What was the selection process?
Anthony Habgood: How much detail do you want to go through? The selection process is that you put in an application. You then go to an interview.
Teresa Pearce: Was it formal or informal?
Anthony Habgood: Was—
Teresa Pearce: Was it a formal interview?
Anthony Habgood: It was a very formal interview, yes. The interview was with two outside assessors of one sort of another - Anne Pringle and Frances Cairncross and the Permanent Secretary and the Deputy Chairman.
Q58 Teresa Pearce: You were appointed by the Chancellor.
Anthony Habgood: I was.
Teresa Pearce: Has he or the Treasury provided you with any guidance on what they expect you to do or what they expect you to achieve?
Anthony Habgood: The Chancellor has not, but I have had quite a few discussions with the Permanent Secretary.
Q59 Teresa Pearce: What sort of relationship do you expect to have with the Chancellor?
Anthony Habgood: I don’t know the Chancellor well. I have met him a few times but I don’t know him particularly well. I had a brief discussion with him during the appointment process. I suspect it will be on an as needs basis.
Q60 Teresa Pearce: What discussions have you had with the existing non-exec members of the Court?
Anthony Habgood: What—
Teresa Pearce: What discussions have you had with them and what discussions have you had with the Governor and the Deputy Governor?
Anthony Habgood: With the non-executive members, since I have attended three Oversight Committees I have seen them all in action in those. I have attended a couple of dinners in which they have been present. I have also had one on ones with each of them, so I had had discussions with them. I have got to know them a bit. With respect to the Governor, I met him twice before my interview. I have seen him quite a few times since, sometimes longer and sometimes just like last night at Charlie Bean’s retirement. Obviously saw him then but that was trivial. Yes, I have seen him six or seven times or something.
The Deputy Governors you asked as well.
Teresa Pearce: Yes.
Anthony Habgood: I have seen each of them—I am pausing because I haven’t seen Minouche but I have met each of the others, albeit reasonably briefly.
Q61 Teresa Pearce: So if there was a problem that you felt needed to be solved but it was outside your existing powers, what would you do?
Anthony Habgood: I think it depends on whose powers it is. I say that—
Teresa Pearce: Or the powers did not exist. Who would you approach? What would you do?
Anthony Habgood: Again, I think it depends on what the problem was. As I have said in answer before, if it is concerning other members of the organisation then you go through the Governor and as I would through a chief executive. This comes back to this question of: are you an executive chairman or a non-executive chairman? It is a very important distinction. I would not be shy about raising questions if there are any questions that I think need to be raised but I find it rather hard to answer it hypothetically.
Teresa Pearce: Thank you.
Q62 Jesse Norman: Mr Habgood, I apologise for missing the beginning of your testimony. Can I just ask: have you had any experience of dealing with a public crisis in any company of which you have been chair?
Anthony Habgood: Have I had any experience of dealing with a public crisis?
Jesse Norman: Yes.
Anthony Habgood: Could you help me a little bit with what a public crisis is?
Jesse Norman: Sure. One example would be a question about a company’s products or having to deal with a crisis of the company itself, like a profit warning.
Anthony Habgood: Oh Lord, yes.
Jesse Norman: Good. Tell us about some of those experiences. I want to gauge your understanding and experience dealing with the public in those kinds of circumstances.
Anthony Habgood: The first thing is you try awfully hard to make sure they don’t happen, so if you are talking about—
Jesse Norman: But we do not care about that. It is an assumption of this discussion that they have happened, you are in the frame and I am asking you about the circumstances under which this has happened and what you did about them. Take the best example that is the most flattering to you and tell us what happened.
Anthony Habgood: I will have to think that up in real time. If you have any sort of—I am sorry, I do not have completely clear in my mind what sort of crisis you have in mind. If we have a horse meat scandal, for example, if that would do for you.
Jesse Norman: Sure.
Anthony Habgood: I am grasping a bit because it is not a very big scandal but it was certainly all over the headlines.
Jesse Norman: One where you have had to deal with the press, the media, public inquiry, questions and that.
Anthony Habgood: What did we have to do in that circumstance?
Jesse Norman: What did you do in that circumstance?
Anthony Habgood: What did I do?
Jesse Norman: Yes, what was your personal involvement?
Anthony Habgood: I wanted to be sure that we were totally transparent. This is Whitbread. If you look at how that evolved, the company probably led the way in terms of transparency in saying, “We are going to withdraw the products where we think there is a problem. We are going to go through and we are going to put in testing regimes wherever it is. We are going to try to do the total reassurance of the supply chain” and so on. Where I kick myself whenever something like that happens is: why didn’t I notice before or why didn’t we as an organisation notice before that some of this stuff was being traded all around the place? And you think, “How the devil could that have happened without something being slightly odd?”
Q63 Jesse Norman: Sure. But that is the substance. Were you acting as the public mouthpiece of Whitbread at the time? Were you taking—
Anthony Habgood: No. The chief executive was acting as the public mouthpiece.
Q64 Jesse Norman: Have there been any companies you have been involved with as the chairman of chief executive where you have had to act as the public mouthpiece in any context of adversity like this?
Anthony Habgood: My very first experience of being a chief executive was being chief executive of Tootal and having an unfriendly bid from David Alliance from Coats Viyella where, yes, I was very much the public face all the time. There was nothing else on at the time. This was 1990, 1991. It was another recessionary time and there was nothing else on so we were on the television every day.
Q65 Jesse Norman: Last year Court minutes suggested that outside observers thought that communications were the single most significant risk to the Bank. Do you agree with that and what role do you think you will play in the communication process and the strategy for communications at the Bank?
Anthony Habgood: You mean communications of policy?
Jesse Norman: Public communications.
Anthony Habgood: Public communications are clearly very, very important there and of course there is this huge desire of all markets for certainty and we find this all the time, that people want us to tell us what our markets are going to be like in two, three or four years’ time. Of course, forecasting is inherently difficult and so how you communicate that is critically important. I have to say I think the current Governor is a pretty good communicator. As chairman of the Monetary Policy Committee, for example, I think he has to control how that gets communicated out into the market. So I wouldn’t see myself as being involved in that on an ongoing basis.
Q66 Jesse Norman: You haven’t sought to take public credit for the success of organisations you are associated with and have said, “The role of Chair is to make the Chief Executive and the organisation look good so their performance and reputation among stakeholders is high and continuously improving”. Is that a polite way of saying that you are not proposing to be anything more than in the back seat of the Bank of England when communications are at a premium?
Anthony Habgood: I am not sure what “the back seat” means. I suppose it comes back to this question of: what are you? I see myself as being a non-executive chairman and I do not see myself as being the frontline communicator when the successes of the organisation are trumpeted. Apart from anything else I don’t think it is fair. That is largely the result of the work of the chief executive and the other executives, so I don’t look to do that. Am I afraid to do that? No, of course not but it does not seem to me to be right in that structure.
Q67 Jesse Norman: Let us take a scenario and I apologise if this has been touched on before, but imagine that the LIBOR scandal implicates a very senior member of the Bank, and imagine if for various reasons the Governor either is not available or it is not appropriate for it to be dealt with by someone who is an executive of the Bank. What I am hearing from you is that the last time you faced a hostile press was in 1991. I am worried that that may not make you qualified to lead on communications in an organisation of this size, prestige and importance.
Anthony Habgood: I would not shirk for one minute from taking that responsibility in that circumstance.
Jesse Norman: But you do not have the experience according to what you have said because you have let others take the lead and you haven’t been involved in that position for 20 years.
Anthony Habgood: You could interpret what I said that way.
Q68 Jesse Norman: Why would it be wrong for me to interpret it that way? What other experience do you have? You can point to some other experience if you have it. I am just trying to get to what your experience is in this area.
Anthony Habgood: As I say, I haven’t been taking the lead there. I haven’t been in a position where it has been necessary to do so, so in that sense I suppose, yes, you are right.
Q69 Jesse Norman: When you have talked about constructing a board in other contexts where you have been the chairman, or non-executive or executive chairman, would you see yourself as having a role in constructing the Court with new recruits to the Court?
Anthony Habgood: Yes, I would.
Q70 Jesse Norman: You would not expect to be overruled on something you felt strongly about in terms of a person?
Anthony Habgood: That I do not know but I do have a little experience of this in that we are just in the process of recruiting three more people.
Jesse Norman: A little bit, yes.
Anthony Habgood: In my view I have played an important role in that.
Q71 Jesse Norman: I understand, but the point I am trying to get to is the degree of your interest and desire to get involved, your feel for the issue of construction of a board and the degree to which you want to be held accountable for its being constructed in the way that is successful. It sounds to me that is high on all those.
Anthony Habgood: That is high on the list, yes, absolutely.
Jesse Norman: You feel strongly about all those things?
Anthony Habgood: What is different here, of course, is that broadly in my normal life I would hire a non-executive a year in an organisation because you have about seven and they last about nine years and some fall by the wayside. Sometimes obviously you have to act more than that but normally you would have an evolving board. Here that does not seem to be that way. The idea that you have a board where you have the chairman, the chairman of the audit committee and the deputy chairman all coming to the end of their terms in a month is something that could happen in a crisis of course because somebody says, “A pox on the lot of them” but normally speaking you would go out of your way to avoid that sort of situation.
Jesse Norman: Which: one looks like carelessness; two looks like enemy action or a cock-up.
Anthony Habgood: As somebody might say, yes.
Jesse Norman: It does not feel like the shrewdest possible piece of previous management, by implication.
Anthony Habgood: That I don’t know. I have no idea how those boards were constructed. All I do know is—
Q72 Jesse Norman: But it should not be the case that those people are coming to the end at that particular moment. They should be conscious of that.
Anthony Habgood: Now we are going to be hiring three people at the same time they are likely to come to an end more or less at the same time because of all sorts of statutory limitations on that, which I would not face elsewhere.
Q73 Jesse Norman: A final brief question. Therefore, you don’t think it is right for there to be any hiring that could be sufficiently diverse or different from the board’s existing ways of thinking or your way of thinking to be actively disruptive in some way, to genuinely shake up people’s ideas? You would be opposed to that? Because by definition you would be bringing people on that you wanted to hire as part of a board construction strategy that you gave your blessing to.
Anthony Habgood: Yes, but I would certainly be very open to people saying, “Don’t you think we need A?” As I said, the most obvious crying gap now is a gender gap.
Jesse Norman: Thank you very much.
Q74 John Thurso: If I can just follow up on that. Is there anything that you feel that you would take direct personal responsibility for?
Anthony Habgood: I would take direct responsibility for the way the board is run and the governance is managed.
Q75 John Thurso: There is nothing else you feel as chairman of the board that would particularly fall to you?
Anthony Habgood: The overall reputation of an organisation is very high on that list and all these things that we have been talking about, the smooth evolution, the evolution of the thing, the construction of the board, how it all works, is very much in the chairman’s remit.
Q76 John Thurso: Did you ever have a chance to read the book Making it Happen, Iain Martin’s book about the RBS collapse?
Anthony Habgood: I haven’t I’m afraid.
John Thurso: I recommend it not for what it says about RBS but for the subtext, which is the tale of a very good, very competent, very experienced industrial chairman, Sir Tom McKillop, who completely lost his reputation. If you look through the events he was doing everything by the book. He was highly collegiate. He was working hard. He had every last bit of corporate governance in there, and we all know the result.
Anthony Habgood: Yes.
Q77 John Thurso: In your due diligence what, if anything, has kept you awake at night contemplating a risk that might put you in the same position?
Anthony Habgood: I am a pretty good sleeper, but the thing that always worries me is being blindsided. That is the thing I haven’t seen. It is hard to be specific about that almost by definition but—
Q78 John Thurso: If I can take the blindsiding, you can argue that taking somebody with not a lot of financial industry experience or prudential financial monetary experience, but who is a very good and competent chairman, into the position is a great sign of strength. It is the outsider who can see the flaws. You can argue that it is a great weakness, whichever. But whichever way you look there is the potential in the organisation for you not to be aware of the brewing crisis, because if everybody knew it was a brewing crisis they would be doing something about it. So it is the good old fashioned unknown unknowns. What will you do to try to get ahead of the game as much as you can on that issue?
Anthony Habgood: How do I get ahead of the game on unknown unknowns?
John Thurso: Yes.
Anthony Habgood: That is a pretty tricky question I think. You have to follow your instinct, don’t you? One of the reasons why I think Whitbread has ridden through this crisis well is that we took prudent action going into it. I guess that wasn’t an unknown unknown. Perhaps it was an unknown known, I am not quite sure. But it was the thought that life is going to get tough, and when all the advisers are telling you that what you should be doing is selling and leasing back your teaspoons you start to say, “Now wait a minute, prudence now is important” and it puts you in a position where you can go through.
Q79 John Thurso: A last question if I may. Your chief executive of Whitbread I used to know very well.
Anthony Habgood: Alan?
John Thurso: Yes. But if I look at the list of matters reserved to the Court one of the ones that jumps out is the Bank’s risk management. My understanding is that audit and risk is one committee—
Anthony Habgood: Yes, I understand that as well.
John Thurso: —and I understand that you are not on it and the past chairman was not on it.
Anthony Habgood: That is correct.
John Thurso: Given that all of the technical side is very well covered by the Governor and his staff—and I have no doubt that you will be able to oversee that extraordinarily well—is not the thing that should be keeping you awake at night the risks to the Bank and should you not, therefore, be at least on if not leading a risk analysis and therefore, by definition, should the risk committee be separate to the audit committee?
Anthony Habgood: I do think risk is very important, partly because risk to all of us of the Bank doing something silly is huge obviously. But to the Bank itself there is also the reputational risk—which is huge—of getting some of these things wrong potentially and of course there is balance sheet risk. If you have half a trillion balance sheet, even if a lot of it is underwritten, potentially there is a fair amount of risk knocking around numbers of that size. Should there be a separate risk to audit committee? I don’t know the answer to that. It is too early for me to say. Instinctively, quite possibly but I wouldn’t want to say that. Would I expect to attend the audit committee? Yes, mostly. I do mostly. It is usually considered inappropriate for a chairman or chief executive to be a member of the audit committee, but my practice is to attend most audit committees with the permission of the chairman of the committee of course. An awful lot of audit and risk committees are combined, since the largest risk—
Q80 John Thurso: That is one of the big differences in corporate governance between your average plc and your financial institution. Financial institutions usually or quite often—and particularly post crisis—separate audit and risk.
Anthony Habgood: Yes, it has moved that way. I have to say in the plc world I prefer the risks to be assessed by the board and not by the audit committee, the process by the audit committee but the risks themselves by the board. Because outside the financial services world the risks can come from all sorts of places, which some members of the board will understand a lot more than some members of the audit committee. So there is a balance of where you make those assessments. Here this is more, as you say, akin to the financial services set up.
Q81 Chair: You mention risk on the balance sheet. Have you had a chance to look at the balance sheet?
Anthony Habgood: Obviously, yes, but not in any depth.
Q82 Chair: Have you given any thought to what the right level of capital is for a central bank? You can say no. It is better to say no than say yes and then find that you have not given much thought to it, so do say whether you have.
Anthony Habgood: I have given a little thought to it. I have given a little thought particularly to the way that the balance sheet will or may evolve, and that is about if and when quantitative easing is unwound a bit what will the banks want to happen with that?
Chair: I am merely discussing the capital not the indemnified QE part. I would just like to focus on what you think the capital required for a central bank is and why.
Anthony Habgood: I don’t know what the capital requirement is but whatever it is it seems to me that if you move from a situation where you have 25 billion to 40 billion on the balance sheet, if that goes unindemnified up to a much higher number it is likely to mean that the equity base should be higher, which is a very simple statement.
Q83 Chair: Okay. Do you know what the purpose of the capital of a central bank normally is, what the function is?
Anthony Habgood: What is the purpose did you say?
Chair: Yes.
Anthony Habgood: Again, you will know more about this than I will but to me, as an outside observer, the capital of a bank is there as a buffer for fluctuations in the asset values that you are holding on the balance sheet, and the bigger they are unindemnified the bigger the equity base needs to be to cover that. My understanding here is that the balance sheet is thin as you look forward, if you make the assumption that the balance sheet will get bigger than it was at a pre-crisis level.
Q84 Chair: It is very early days, and you do not have yourself up to speed, so I am not going to pursue any of this. In any case it can be found in textbooks and all that sort of thing, what central banks do and what the purpose of their balance sheet is. The reason I am asking these questions is back to my earlier question of: whether you think that you can get up to speed, with what a central bank is all about on the governance side, from a standing start on one and a half days a week or a little bit more in the transition phase. It is such a unique institution a central bank and this central bank has no tradition of meaningful governance at all, as I am sure you are aware. Prior to 2003 the Court was wholly ceremonial or 90% ceremonial, and it has these massive new powers. So this role that you are taking is suddenly a very important one. That is why I am asking these questions. Do comment if you want or not if you don’t.
Anthony Habgood: I agree with you that the governance of this bank is important. That is what you are saying. Of course I agree with that, and I would not be taking the role if I didn’t think it was. Am I capable of doing it? That is for others to judge rather than me I suspect.
Chair: Thank you very much for coming to give evidence this afternoon. It has been extremely interesting. You have given some very full answers and we are grateful. We will now go into private session.
Oral evidence: Appointment of Anthony Habgood as Chair of the Court of the Bank of England, HC 451 23