Was the Bank of England oblivious to impending meltdown in 2007?

Was the Bank of England ignorant of the threat to the global financial system as late as July 2007?

New documents released today show that the bank was apparently unaware of the imminent danger just one month before the global financial crisis began in August 2007.

The documents reveal that during top-secret meetings of the bank’s governing body, the Court, in the weeks leading up to the crisis, members were discussing staff pensions, open days and new members of the Monetary Policy Committee, the BBC reports.

The BoE’s Court operates in a similar way to a company’s board.

Liquidity was raised as a “central concern” in July 2007, but no action was taken.

The minutes, which are almost in full and range from mid-2007 to 2009, reveal that the former governor of the BoE, Lord Mervyn King, kept the Court in the dark and fell out with some members over alleged leaks of information.

Following the publication of the minutes today, Andrew Tyrie, the chair of the House of Commons Treasury Select Committee, said the documents showed the central bank “did not have a board worthy of the name”.

“Even when questions were asked by individual non-executive directors, the executive usually presented a unified front to the Court, apparently rendering it of little or no use as a forum for creative discussion and constructive challenge,” Tyrie said.

Speaking to the Financial Times, Lord King responded to the publication of the minutes to dispute that the Court had been kept in the dark.

He said that the action of the bank had been “fully” reported to the Court.

He added: “Far from being dysfunctional, Court discharged its duties in a difficult period within a statutory framework that imposed a number of constraints that have subsequently been relaxed: Court was too large, it had a number of members with serious conflicts of interest, and there was no provision for a non-executive chairman.”

Phoenix rising

The documents also reveal that by November 2007, the BoE had assigned code names to stricken banks that were considered to be in danger of collapse:

Bradford and Bingley was codenamed “Badger”;

Alliance and Leicester: “Tiger”;

Lloyds TSB: “Lark”;

HBOS: “Fox”.

And RBS was rather appropriately, or perhaps hopefully, code-named “Phoenix” – the bird that self-immolates and then rises from the ashes.

“Fox”, “Lark” and “Phoenix” all borrowed secretly from the BoE, the FT reports, and the bank offered “Tiger” a £3bn collateral swap, though Alliance and Leicester did not take the bank up on its offer.

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