Whatever else it was, the Governor of the Bank of England's speech this week was not much of an apology. Sir Mervyn King's analysis of the financial crisis pointed the finger at banks, at regulators, at politicians; at an entire global system drunk on incomprehensible debts and incalculable risks, in fact. But although he acknowledged that the Old Lady of Threadneedle Street must accept "some" responsibility for going along with such a system, he as good as denied that it was within her powers to put a stop to it. Such an excuse must never be available to a Governor again.
Sir Mervyn's principal thesis is that although he and his colleagues could see troubles ahead, they could do little to steer Britain around them because the regulation of financial services was – thanks to Gordon Brown's 1997 reforms– no longer within their remit. Although the Governor did acknowledge that "with the benefit of hindsight, we should have shouted from the rooftops", by hedging the concession with claims that the Bank's power was limited to "publishing reports and preaching sermons", his strong implication was that even shouting louder would have made little real difference.
It is a pusillanimous defence. Sir Mervyn's primary responsibility may indeed have been monetary policy, but he was also charged with ensuring wider financial stability – a task at which he palpably failed. And as the head of arguably the most influential of all financial institutions, he hardly needed his own hand on the tiller in order to steer the debate.
To Sir Mervyn's critics, however, the Bank's sins of omission are still only half the story; its sins of commission are blacker still. The Governor may now admit that he should have shouted louder, but he defends to the hilt both the management of monetary policy in the run-up to the crisis and the responses once the storm hit. His detractors – and there are plenty of them – are less forgiving. Not only should the Bank have hiked interest rates earlier to curb the housing bubble and limit the exposure of, say, Northern Rock. It should also, once the trouble started, have acted faster to shore up failing banks, rather than losing precious time to ditherings about the dangers of moral hazard.
In the end, how far Sir Mervyn was culpable – and whether he apologises, or not – is largely immaterial. More important by far is what happens next. Despite its patchy record, the Bank has come out of the crisis with its sphere of influence vastly increased. There are good reasons that this is so. After all, reinstating its role as regulator of the financial services sector both creates the big-picture authority that was so manifestly lacking in the recent crisis, and also avoids a repeat of Sir Mervyn's primary excuse for the past.
The Governor set out a compelling account of the Old Lady's future this week, outlining with gusto her expanded regulatory responsibilities, plans to enable banks to fail without the state having to step in to save them, and commitment to restructuring the banking industry along the lines set out by the Vickers Commission. What he did not do was answer the central question as to why the Bank should be trusted to wield its vast new powers more diligently than it did its more limited old ones.
With the Governor due to step down next year, such doubts will mainly be met by his successor. There are already several names in the frame, including one deputy governor, one former Cabinet Secretary and a surprise outsider currently running the Bank of Canada. Sir Mervyn concluded his speech with the promise that the newly beefy Bank will "take away the punchbowl just as the next party is getting going". It can only be hoped that his successor proves more abstemious than he was.Reuse content