A regulator cannot be seen to break the rules. On those grounds alone, Charlotte Hogg was right to resign as deputy governor of the Bank of England. She had failed to disclose that her brother was a senior executive at Barclays, a bank that would be under her very own regulation. And she had failed to do so not once, but a number of times, despite a series of prompts by the Bank of England to declare potential conflicts of interest over the four years she worked on Threadneedle Street. The family connection only came up within the past few weeks when Ms Hogg went in front of parliament for a confirmation hearing. She could have tried to face down the critics, but wisely chose not to. It would in any case have been hard for her to carry on after yesterday’s report from the Treasury select committee that concluded “knowing what we know now, we would not have approved her.” As MPs themselves observed, this easily ranks among the most damning judgments ever made by the committee.
This unfortunate episode could be written up as the oversight system working as it should – parliament acting as watchdog, with a nasty advisory bark. Others, such as former chancellor George Osborne, see this as an example of a brilliant woman copping an unduly harsh punishment. But there is far more to this story than a mere clerical error by an otherwise talented official. Take at face value Ms Hogg’s assurances that she never discussed any work issues with her brother, and one is still left amazed at the attitude of the Bank’s senior most officials, including Mark Carney. Going by her resignation letter, the governor talked his deputy out of stepping down earlier. He evidently thought the infraction was not a major one and that the storm could be weathered. In this case, his judgment – and that of others at the very top of the Bank – is badly flawed.
To restate, Ms Hogg breached rules that she herself helped write. She filled in the Bank’s forms about all manner of conflicts of interest involving her parents and her husband, but did not mention the obvious one with her brother, Quintin. Despite that, when she appeared in front of MPs in February she claimed to be fully compliant with the code of conduct. Only later did she write to admit that was not true.
What is amazing here is how speedily her colleagues on Threadneedle Street circled the wagons around her. The chair of the court of the Bank, Anthony Habgood, assured MPs that “no actual or potential conflict has arisen to date”. Asked by the Treasury committee’s chair, Andrew Tyrie, whether he knew what Ms Hogg’s brother acually did at Barclays, Mr Habgood said: “I understand he works in the strategy department.” Asked: “Do you know what that is or what it does?” Mr Habgood replied: “No.” So on what evidence was he so confident that there had been no conflict of interests? A quick Google would have informed the Bank’s de facto chairman that one of Quintin Hogg’s key roles is analysing how regulatory changes affect Barclays – the very same regulatory changes that would be made by his sister. Mr Habgood was presumably happy to accept one woman’s word that all was above board.
Context is important here. Since the credit crunch, MPs’ expenses and newspaper phone-hacking, distrust has grown between the public and those people they expect to make policy and explain it. Much of this wariness is justified, and it should force the elites to behave better and to be seen to behave better. Ms Hogg’s story fails this test, as does the reaction of her colleagues. What this resembles is another instance of the establishment looking after itself.
The Bank yesterday announced that the court would be reviewed by... directors of the court. That review must be handed to independent outsiders immediately. Separately, the Treasury select committee should examine the Bank’s governance and internal regulation. Some remedial work clearly needs to be done.