The Bank of England should open up to a broader range of views when producing inflation and growth forecasts and clarify the role of its key policy-setting committees, three independent reviews of the central bank's operations recommended.
Just five weeks before the appointment of a new governor, the reviews of the BoE's forecasting capabilities, its liquidity framework and its provision of emergency assistance gave a list of improvements for the institution, which will get far-reaching powers as the country's top financial regulator in 2013.
Bank governor Mervyn King and his deputies signalled support for a number of the suggestions and pledged to evaluate the recommendations and plan changes.
The central bank's oversight body, the Court, launched the three reviews, unique among major central banks, in response to criticism of the bank's forecasting record as well as its role in the run-up and during the financial crisis in 2007/2008.
The three reviews all said that the central bank's way of operation were broadly fit for purpose and acknowledged the wide range of changes it had gone through already.
All three reviews raised the issue of clarifying the roles and cooperation of the rate-setting Monetary Policy Committee, bank-watchdog Prudential Regulation Authority and the new Financial Policy Committee, in charge of securing stability of the financial system as a whole.
The head of Britain's influential Treasury Committee in parliament kept up his call for an even wider review into the central bank's role during the crisis.
"The decision to commission these reviews fell well short of what was required," committee chairman Andrew Tyrie said.
All three independent reviewers got broad access to the Bank records and conducted interviews with staff, policymakers and officials from the finance ministry and other central banks.
The review of the forecasting record - conducted by former Fed official David Stockton - focussed on how to avoid "intertia", that all regular forecasting exercise were prone to.
"An over-arching theme that cuts across many of the options offered below is the objective of increasing the number of 'entry points', both internally and externally, for alternative points of view about economic developments and their relation to the forecast and to policy," Stockton wrote in his report.
The nine policymakers prepare a consensus forecast for the quarterly inflation report, which provides the basis for policy.
Stockton said that the MPC's recent forecast performance had been noticeably worse than prior to the crisis, and marginally worse than that of outside forecasters. The forecast errors had been characterized by persistent over-prediction of growth and persistent under-prediction of inflation, he noted.
Among the 21 suggestions in his 59 page review, are the introduction of staff forecasts, more exchange with researchers, improved participation and promotion of high-qualified staff and a openness about the details of the individual forecasts.
In its initial report, the central bank governors pledged to work up plans to develop the expertise of staff and the engagement with outside experts.
However, they stressed that the consensus forecast in the inflation report was the only outlet for a collective view and the process to form it brought benefits.
The 148-page review of the BoE's liquidity framework by former Co-CEO of JPMorgan Investment bank Bill Winter said the system was in general "robust and broadly fit for purpose", providing liquidity insurance and
However, Winter suggested several ways to remove any remaining stigma for banks seeking liquidity through the BoE's discount window facility.
Winter also stressed that governance of the framework and the coordination between all parties involved could be improved, something the BoE's Court should ensure.
"It should be informed of the implications for monetary conditions of other liquidity operations, and have the opportunity to express views on such operations if those implications were likely to be material," he said.
The view chimes with concerns voiced by external policymaker Martin Weale, who noted that the Funding for Lending scheme, put in place by the Bank and the Chancellor, had an impact on monetary conditions.
The Bank intended to follow the recommendations, the governor said, aiming to formalise the roles of MPC and FPC.
In the final review, former Bank-policymaker Ian Plenderleith examined the BoE's emergency provision of liquidity at the height of the financial crisis in 2008-2009.
In the future the central bank could broaden it to non-banks, such as called central counterparties, he said.
Plenderleith also suggested that the central bank more clearly defined the principles under which it would act as a lender of last resort.
The Bank governor and his deputies said they agreed with recommendations made with regards to the decision-making around future emergency assistance.
"We will develop the Bank's existing structures, in close consultation with Court and with the Chancellor, who is responsible for any decision involving the use of public funds, including the authorisation of ELA," they said.
(Reporting by Sven Egenter and Steve Slater; editing by Ron Askew)