Bank of England governor Sir Mervyn King has admitted the bank could have done more to prevent the banking crisis and has renewed calls for reform in the troubled sector.
Speaking at the 2012 Today Programme Lecture in London last week, King said the BoE was not blind to what was happening in financial markets and tried to warn that risks were being underestimated.
He said: “So why, you might ask, did the BoE not do more to prevent the disaster? We should have.
“With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much and that so-called ’light-touch’ regulation had not prevented any of this.”
King said new reforms should be implemented in the future to protect the rest of the economy from failures in the banking system. These include ensuring that more of banks’ shareholders’ own money is on the line and that banks rely less on debt.
From 2013, the BoE’s new Financial Policy Committee will have the power to regulate banks. King said three reforms top his list including regulation, resolution and restructure. He said: “The three R’s will be central to the work of the BoE. And all of that will come on top of our responsibility for monetary policy to reduce inflation while supporting a gradual recovery of our battered economy. It is the biggest challenge the bank has faced for decades.”
King failed to respond to the strong concerns over the governance of the new BoE structure from the Treasury select committee and Labour.
The Treasury select committee and the bank have clashed over the committee’s request for it to release minutes from court meetings during the financial crisis. The bank says revealing the minutes would not allow space for private discussions in future but committee chairman Andrew Tyrie says not releasing them prevents the committee from properly scrutinising the bank.
Skerritt Consultants head of investments Andy Merricks says: “I do not think there is much more the BoE could have done. You can throw lots of regulation at the banks but everyone needs to take collective responsibility for what happened and that includes those who borrowed on credit cards who could not afford to.”