Mark Carney shifts away from Mervyn King with bank support plan
The Bank of England Governor, Mark Carney, last night unveiled an overhaul of the way the Bank provides cash to troubled lenders, while expressing his strong support for the City as a hub of global finance.
Mr Carney said the new liquidity framework reflected lessons learned from the financial crisis, when the Bank was criticised for being too slow to support crisis-hit lenders.
The Canadian promised that, in a new financial emergency, the Bank would lend to private banks against a wider range of collateral, rather than insisting on the best quality assets as before. He added that the Bank would lend funds for longer and that its facilities would be cheaper. Combined, policymakers hope these measures will make banks more willing to lend to those wanting to borrow.
"Five simple words describe our approach: we are open for business" Mr Carney said. He added that the new framework was "not ornamental" but was designed in the full expectation that struggling banks would in future avail themselves of the backstop lending.
And in a move likely to be interpreted as a departure from the approach of his predecessor, Lord King, who persistently warned against banks that are "too big to fail", Mr Carney said that the issue was safety, not size. "It is not for the Bank of England to decide how big the financial sector should be" he said. "Our job is to ensure that it is safe".
Mr Carney also warned that global "financial fragmentation" since the since the crisis of five years ago was holding back growth and undermining living standards. "Cross-border capital flows have fallen sharply since the crisis. Multilateral trade liberalisation has stalled, to the detriment of global prosperity" he said.
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