One of Britain's most senior bankers has questioned the effectiveness of Mark Carney's policy of "forward guidance", which ties future interest-rate rises to the level of unemployment in the UK.
Lord Burns, currently chairman of Santander in the UK and former chief economic adviser and permanent secretary to the Treasury, said that if he had still been at the Treasury he would have "pushed back" against the Bank of England governor's pledge to keep interest rates at their historic 0.5% low.
Carney, who took control of the Bank of England in June, has indicated that interest rates will not rise unless the unemployment rate falls from 7.7% to 7%, provided that inflation does not get out of control in the meantime.
Burns, speaking at a conference organised by the British Bankers' Association, said he was "not terribly enthusiastic" about forward guidance and that, while he was not upset about the focus on unemployment, "I don't think it will make very much difference".
Even so, he indicated that he did not wish to complain about the policy, which he said may well have been devised before the recent improvement in economic data. "It is understandable that you want to reframe [policy] and it was possible it was policy in the making before we had the better run of figures," Burns said.
At the same conference, the Bank of England mounted a robust defence of its decision to relax rules allowing Chinese banks to operate in the UK, insisting that the policy was not created to coincide with George Osborne's trip to China. Andrew Bailey, chief executive of the Bank's regulatory arm, the Prudential Regulation Authority (PRA), said that the decision to allow Chinese banks to operate as branches rather than subsidiaries should not be seen as a "free for all". He added: "It is a general policy, not a China policy, and it is consistent with promoting the benefits of an open world economy."
Bailey was speaking after concerns were raised by the Treasury select committee that the regulator had been put under government pressure to help Chinese banks set up in the City. Setting up as a branch allows Chinese banks to be regulated in China, while setting up a subsidiary would require banks to comply with the – probably tougher – rules of the PRA.
In response to questioning by Sir Win Bischoff, chairman of Lloyds Banking Group, Bailey said: "I don't think of us setting out to create competitive advantage … I don't regard myself as a promoter of the City of London".
Bailey said he did not expect the branches to be focused on taking retail deposits – which might have led to concerns about losses for savers, as was the case when the Icelandic banks ran into trouble five years ago. Instead, he said, the branches were likely to be "straightforward wholesale banks of the type that support world trade and capital flows".
The conference comes at a time when the Financial Ombudsman Service is still receiving about 2,000 complaints a day about the industry, and Martin Wheatley, the head of the Financial Conduct Authority, revealed that one of the big four banks had yet to end the link between retail sales targets and bonuses. Wheatley, , whose organisation has been investigating bonuses, said: "The early analysis – and I think we have to stress this is early analysis – shows three of the biggest UK banks have removed the direct link to sales in incentive arrangements for frontline staff in retail branches and call centres."
The banks are hoping that their new seven-day switching service for current accounts will head off any attempt by the government to force them to make accounts portable, like mobile phone numbers. The Payments Council dismissed figures released by Virgin suggesting the service was currently showing a 30% failure rate. The council, which is overseeing the switching service, said that 95% of customer accounts were being switched within the promised seven day period, but admitted that 25% needed additional security checks.
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