Allegations that small businesses were driven to collapse by the Royal Bank of Scotland were “deeply troubling” and ought to be pursued “to the fullest extent of the law”, Bank of England governor Mark Carney has said.
Mr Carney confirmed that bank watchdog the Financial Conduct Authority had been informed but agreed that it was “shocking” that the allegations had not been picked up earlier.
A report by Business Secretary Vince Cable’s adviser Lawrence Tomlinson alleges RBS drove firms to collapse in order to buy back their assets at rock-bottom prices.
Mr Carney told MPs on the Treasury Select Committee yesterday that the claims were “deeply troubling and extremely serious”, adding: “It is the direct responsibility of the FCA to conduct an appropriate investigation.
“This has to be tracked down to the fullest extent of the law.”
During the wide-ranging hearing, he also defended his views on the importance of the financial sector to the UK, and acknowledged doubts about the quality of economic data provided by the Office for National Statistics (ONS).
He also pledged that increasing the number of women running the Bank of England would be a central priority.
On RBS, Mr Carney dismissed the idea that “predatory restructuring” of businesses could be a consequence of rules obliging banks to increase the ratio of capital they hold, saying: “This behaviour is a fundamental violation of the banking relationship.”
Pressed on whether such practices should have been picked up earlier by regulators or within RBS, he said: “If these activities proceeded on any sort of scale, I think it is remarkable. It is shocking.”
Mr Carney was also challenged during the session over the Bank’s flagship forward guidance policy designed to reassure households and businesses about interest rates.
The guidance pledges that policy-makers will not consider raising rates above 0.5% before unemployment falls to 7%, but uncertainty over when that is likely to happen has drawn criticism that it is instead causing confusion.
The Bank’s latest forecast brought forward the date at which the threshold was on balance likely to be achieved by nine months, but Mr Carney subsequently made clear that the Bank was in no rush to increase rates even when it is met. The governor sharply rebuked Conservative MP Brooks Newmark when he raised the suggestion that this had damaged the bank’s credibility and had left forward guidance “dead on arrival”.
Mr Carney told him: “That is a total failure of logic.”
Markets have been sceptical about the bank’s indications about when interest rates will go up, leading it to “price in” borrowing rates rising sooner.
But Mr Carney said that without forward guidance, in the current environment of falling inflation, strong economic growth, and job creation, markets would have been assuming an immediate rate hike now.
Instead, because of the guidance, that was “not the conversation”, he said.