Given the increased role of the central banks and the difficulties that ratings agencies are having in getting it right, is it time for central banks to become bank rating agencies of last resort...
“The Bank is a bank and not a study group.” Charles Goodhart, who went on to be a member of the monetary policy committee, wrote that this aphorism was often repeated to him when he joined the Bank of England in 1968. “As I understood the essence of this, it implied that the heart of the Bank then lay in its operational links with financial markets and institutions, and not in its contribution to macroeconomic analysis and policy.”
In 2008 the reverse is true. All over the world, central banks have been retooled as monetary analysts pre-eminent, and chief custodians of the macroeconomy. Yet they remain banks, they retain responsibility for the stability of other banks, and the result is a tension: how to ensure the elite inflation-fighters can also act as guardians of financial stability. Rescues at Northern Rock and Bear Stearns were muddled; the reforms so far put forward do not provide a complete solution.
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