The Bank claims that it needs to hide its balance sheet in order to fulfil its responsibility for maintaining financial stability. No other major central bank shares this view.It will no longer be possible to monitor some of the Bank’s activities in a timely fashion. The Bank Return is 170 years old.
The requirement to publish a weekly statement was introduced by the 1844 Bank Charter Act in order to strengthen confidence in the currency by demonstrating that the note issue was backed by gold and other assets.
The Bank lobbied for this requirement to be removed following the 2008 Northern Rock debacle, when analysts used the Bank Return to estimate emergency lending to the failing institution.
This request was implemented in the Banking Act 2009 but the Bank did not immediately cease publication, probably because it would have attracted criticism for doing so at a time when the banking system was still receiving large-scale official support.
To create cover for the desired course of action, the Bank asked former insider Ian Plenderleith to consider the future of the Bank Return as part of a review of its emergency liquidity assistance operations during the crisis.
Reporting in 2012, Plenderleith duly recommended that the Bank should cease publication “in order to improve its ability to provide covert liquidity assistance in future”.
Ignoring the undesirable loss of transparency and accountability, why should liquidity assistance be more effective if covert? Markets usually know when an institution is receiving central bank support; withholding information on the scale of support creates unnecessary uncertainty.
Confirmation of large-scale assistance, indeed, may have a stabilising effect by demonstrating a central bank’s commitment to fulfil its lender of last resort responsibilities.
No other major central bank shares the Bank’s view that transparency must be sacrificed in order to ensure financial stability.
The central banks of the US, eurozone, Japan, Canada and Australia, among others, continue to publish weekly* balance sheet statements, in most cases with more detail than the Bank Return. Other central banks provide monthly statements.
The Bank will replace the Bank Return with a new weekly report giving information on selected balance sheet items but no aggregate assets/liabilities figure.
The full balance sheet will be published quarterly with a five quarter lag and annually with a three to four month lag in the Bank’s Annual Report.
The Bank is under no obligation to maintain these arrangements; it could choose to lengthen the lags even further or suspend publication entirely.
The original aim of the Bank Return – to demonstrate responsible management of the Bank’s balance sheet – remains important today. Monetary stability rests on confidence in the Bank’s ability to meet its obligations without printing money unbacked by assets.
Ceasing publication may encourage conspiracy theories that the Bank wishes to engage in risky lending or interfere in markets, or even that the Treasury plans to cancel the Bank’s gilt holdings.
Reduced disclosure, in other words, may result in more, not less, destabilising speculation.
*Japan publishes every 10 days.
Simon Ward is the chief economist at Henderson Global Investors and writes on the Money Moves Markets blog. The views expressed are his own.
