About-turn for governor

On Sunday evening Eddie George, the governor of the Bank of England, staked the bank's reputation on his judgement that the markets would take the collapse of Barings with relative calm.

His decision to let Barings go to the wall amounted to a dramatic change of mind after a day in which the Bank had been telling all comers that a rescue was vital to the health of the City and the financial system.

Mr George is a man who made his reputation at the Bank as an adroit manipulator and second-guesser of the markets. Like any good market operator, once events turned against him and a City or government financed rescue proved impossible, Mr George switched smoothly to defending his new position.

In essence this was that the disaster was the fault of a rogue trader with no wider implications for the markets.

So far his evening judgement that there would be no Black Monday certainly appears to have proved correct.

If Mr George had been wrong about the morning reaction there would have been much wider implications. A market collapse would have severely damaged the Bank's prestige and reputation in Whitehall and Westminster, just at the point at which it has made real progress towards its long-term goal of independence from government.

The Chancellor still sets interest rates, but the Bank's new highly public advisory role in monetary policy and its discretion to decide the exact timing of interest rate changes has given it a clout it has rarely had before.

That influence could have been smashed to pieces by a Bank misjudgement that led to a collapse in international markets, which would have put the government under heavy pressure.

But the Bank is not yet out of the woods. Under Mr George, a highly committed campaigner against inflation, the Bank's main emphasis has shifted to its role in monetary policy. But banking supervision has been the Bank's Achilles' heel - because controversy over supervision has repeatedly threatened to undermine its attempts to establish its credentials in wider economic policy areas.

Some experts on the financial markets believe that if the Bank is to be independent of government, it must shed its supervision role and leave the job to a separate agency. Otherwise each new banking disaster that emerges will undermine its credibility in monetary policy.

If it proves that there were warning signals in the markets missed by the Bank, then its supervisors are bound to come under political fire again. That could put new momentum behind the calls, so far resisted by the Bank, to hive off banking supervision altogether. That would be a break-up of the Bank of England.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific