14 - Failure of Internal Communication

Summary

The 1987 Banking Act established a new framework for bank regulation in the UK, but the Act did not require the Bank of England to prevent bank failures, and the Bank indeed went out of its way to emphasize that it rejected the view that all bank failures are supervisory failures. The Bank was severely embarrassed by its handling of the collapse of BCCI (Bank of Credit and Commerce International) in 1991 and of the failure of Barings after a foreign exchange trading scandal in 1995. The relative success of its handling of the ‘small banks crisis‘ that followed the recession of the early 1990s, and the very discreet managerial restructuring of Midland with a great deal of Bank intervention went unnoticed. In banking supervision, there is an inevitable tendency for public and political attention to focus on failures: a development that led the Labour Party to separate practical supervision from the Bank in 1997 with the creation of a Financial Services Authority. At the same time, the Bank devoted a great deal of attention to securing the provision of an adequate, stable and sustainable platform for trading, payment and settlement operations.