Who’s job is it anyway?
Posted by hannahflynn on June 21, 2009
“What is crystal clear is that he didn’t spot how the growing size and increasing connectedness of financial institutions was making the Bank of England’s sterling work in controlling inflation the equivalent of re-arranging deckchairs on the Titanic.” said Robert Peston on Mervyn King’s attempts to stabilise inflation last year.
The BBC Business Editor may have had a point about King’s feeble attempts to nudge and poke the economy into shape, but following last week’s explosive Mansion House events, we have to ask if the Governor of the Bank of England had enough power to do any thing else? Last week King said it was not clear how the Bank could complete its legal duties “if we can do no more than issue sermons or organise burials.” hammering a final nail in the coffin for the tripartite system of bank regulation.
The legal duty to the Bank of England to analyse financial threats was only handed over last year, some could argue it was a token gesture when the depths the recession could take the economy became clear. Then, this month, while reform plans were being unveiled in both the UK and the USA, King made it clear he desired more authority to be able to tell the banks what to do. This is a significant departure from the current regulatory system, introduced by Gordon Brown in 1997, which has up until now been defended by the Labour party. The Liberal Democrats are behind King, but the Conservatives have failed to deliver any detailed proposals…yet.
This is an interesting and brave response by King, as he has said exactly what the Labour Party and the banks did not want to hear. If the Bank of England can not tell the banks what to do, then who can?
Darling has responded to the financial crisis by tinkering with Brown’s holy trinity of the Financial Services Authority (FSA), the Bank of England and the Treasury: the tripartite system which King claims does not stand up to the power of the banks. Darling has also refused to blame the current regulatory system for being responsible for the financial crisis, instead insisting the bank boardroom is the first line of defence against risky decision making.
The speech by Darling at Mansion House resonated strongly in the wake of sweeping reforms by the US Treasury which many claim are being made far too late. However, perhaps now is the time Darling should heed the admission by the US Treasury that: “the government could have done more to prevent many of the problems from growing out of control and threatening the stability of the financial system”, as we await the effects of the UK reforms over the next couple of months.