Can Bank of England prevent next crash?

 

Robert Peston talks to Paul Tucker, deputy governor of the Bank of England

The creation of the Financial Policy Committee, which has its first meeting on Thursday, represents arguably the most important change to the way the British economy is managed since the Bank of England was given control of interest rates in 1997.

It will be chaired by the Governor of the Bank of England, soon-to-be-knighted Mervyn King, and its members will include his deputies, other Bank of England executives, regulators and some external experts.

What is its task? To spot where banks and other financial institutions are collectively taking excessive risks - and nip such recklessness in the bud before it causes a devastating crash of the sort we saw in 2007-8.

By the end of 2012, the Financial Policy Committee expects to be endowed by Parliament with sweeping powers, to force banks to slow down the pace of lending, if such lending were seen to be leading to a bubble in the housing market, for example.

So, as the deputy governor of the Bank of England, Paul Tucker, told me today, one of the Financial Policy Committee's tasks will be to periodically make itself unpopular, by making it harder for any of us to obtain a mortgage.

But given that the Bank of England failed to stop the last financial crisis, can we be confident it will get it right next time? This is what Tucker said:

"We can do a lot better job than in the past. There were warnings, from this institution, some from the FSA, many from abroad. And yet no one picked up the warnings and ran with them. The government and Parliament are now saying 'Financial Policy Committee, don't let this happen again'.

"Can we promise it'll never happen again over 100 years, 150 years? No it would be silly for me to say that. But can we do a much better job than happened in this country over the last 15 or 20 years? Yes we can".

We've all got to hope he's right, because the crash of three years ago did more damage to the British economy than any single event since the early 1930s and UK GDP is still below where it was in early 2008.

Which is not to say that there aren't some serious questions to be asked about the institutional structure chosen by the government for closing this particular stable door.

Here are just some of them:

1) Does it make sense to have a Financial Policy Committee, which can determine the supply of credit, separate from the existing Monetary Policy Committee, which sets the price of credit?

2) Are there too many executives on the FPC, and not enough independent outsiders?

3) Should unelected officials determine something as important to all of us as the availability of loans?

Finally, does Parliament have sufficient resources and power to hold the enlarged and strengthened Bank of England properly to account?

Some regard it as slightly odd that the Bank of England's punishment for not preventing the greatest shock in several generations to the stability of the British economy is to be given even more responsibilities.

Given the recent history, it seems important that MPs should have the means to intervene at the merest whiff that the Bank has not adequately learned the lessons.

Robert Peston talks to Paul Tucker, deputy governor of the Bank of England

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 117.

    I am a little puzzled. Well, actually, a lot puzzled. After the trauma of the 2007/8 banking crisis caused by British banks taking on the toxic debt of mostly American banks, what on earth possessed them to loan money to Greece? Even I, a compete economic idiot could see what was likely to happen.

    Ah yes, of course. It was the stench of fat bonuses. Here we go again.

  • rate this
    0

    Comment number 116.

    The fundemental problem with all this Financial mess is that everyting is now all based on trust and belief not on substance. The result of this is that no one is prepared to say when things are going wrong for fear of making it worse or being responsible for triggering a collapse by reporting it. MAD

  • rate this
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    Comment number 115.

    Nice serious questions Robert. Got any nice serious solutions?

  • rate this
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    Comment number 114.

    Regulation has failed... Spectacularly.

    Get rid of the lender of last resort function of the B.O.E. and allow banks to fail when they are small and cannot bring down the *entire country* with them. It is free insurance for banks, and allows them to take bigger risks.

    Break up the failed banks into regional ones.

  • rate this
    0

    Comment number 113.

    What the govt should have done was to protect normal current a/c's and individual savings a/c's and allowed the banks to go bust.The trouble now is banks think they have a get out of jail card via the taxpayer so continue to take risks inc paying themselves obscene bonuses.I don't see this new watchdog being any different in spotting/dealing with problems frankly.

  • rate this
    +1

    Comment number 112.

    @106 - AverageJoe is absolutely correct. Ordinary people have been robbed blind - it's just that at the moment they don't understand who has done the robbing because it's insidious. 97% of our money supply is in the form of an interest-bearing debt. There isn't much further this can go - basic maths demonstrates this. This financial system is dead, an ex-system, it's pushing up the daisies.

  • rate this
    0

    Comment number 111.

    Someone made the suggestion a while ago who seemed to know what he was talking about. He reckoned that the solution to the U.K. deficit could be to take a government levy on all the Mayfair estates over £2 million and repay it with commercial interest over the next 10 years. No one would actually suffer in the process and the super rich would be seen to rescue the country from the banking mire.

  • rate this
    0

    Comment number 110.

    Can Bank of England prevent next crash? No. The crash did not originate in the UK. As a player the BoE is diminished in influence. The IMF is slowly but surely insinuating itself as the world bank.

  • rate this
    +1

    Comment number 109.

    Our monetary system is based on credit or debt, and without constantly continuing issuance of debt, the whole thing falls apart.

    A public campaign has started to end fractional reserve banking, and I recommend readers to look at the Positivemoney.org.uk website which explains further.

  • rate this
    0

    Comment number 108.

    Will this FPC be able to do anything about the risk from derivatives?

  • rate this
    0

    Comment number 107.

    @11.Comfortably Numb
    3) Should unelected officials determine something as important to all of us as the availability of loans?

    What makes you think this is any different to the current setup? At the moment the civil service tells the minister what to say and what to do... And frankly they haven't got it right for 40+ years

  • rate this
    +1

    Comment number 106.

    Can it stop the next crash? no. Is the next crash coming soon? yes. Its all re-arranging the deck chairs on the Titanic. When the Greeks default, and yes it is inevitable, the fallout to the UK may only by $15b, but it will start a domino effect with the other countries that cannot be stopped. The BoE will not be able to do a thing. The debt tally is too high to be paid, it must be reduced.

  • rate this
    0

    Comment number 105.

    All knowledge, like all vocation is the accumulation of ancestral death rights in motion. Worshipping the fascist pig rights of the animal is not a good life mechanism, compatible to real right.

    All banks exist in the public realm of space, to violate the realm is to make banks private and conceal transparency from public accountability. Preditor pig make sh*t shine, but smell, still sh*t!

  • rate this
    0

    Comment number 104.

    So the bank of England has a new pin, to pop the next bubble, but the man/woman that can estimate the size of a future bubble has not been born yet, as all the parameters of this equation are indeterminate. and that includes banks' greed and hype

  • rate this
    +1

    Comment number 103.

    #102 MuseV

    Don't get me wrong, the banks are big winners here. For the sake of continuing the previous example, I see the bank as having two sides: one that provides the framework in which this 'circle of people' operates, the other that gambles on various markets. The latter side went bust, which meant that the former side was going to result in social breakdown.The two must be separated.

  • rate this
    +3

    Comment number 102.


    #101 Oblivion

    ...but the banks have not lost money...they were bailed out by the state's taxpayers. Private enterprises that took ludicrous risks were saved by our govt.
    It's called privatised profits and socialised losses (aka socialism for the elites).

    Read this to better understand what has happeened...

    http://counterpunch.org/hudson06062011.html

  • rate this
    0

    Comment number 101.

    Mike #3
    The question is often asked how banks, states and people can all seem to lose money - where did it all disappear to?

    The answer is that money is mostly debt.Imagine a circle of people all owing money to the next one in the circle.As long as the money flowing round the circle encourages people to borrow more from the previous guy,it's all ok.When debts need to be paid, the flow reverses

  • rate this
    +1

    Comment number 100.

    The supply of credit? and the price of credit? now were getting there,printing money(the supply) causes inflation a price we all pay.give me control of a nations money supply and i care not who make`s its law`s. mayer amchel rothchild. Will someone at least give merv a calculator.

  • rate this
    0

    Comment number 99.

    Will it be staffed by the same people who have consistently failed to get predictions of growth and inflation right?

  • rate this
    0

    Comment number 98.

    s'as easy as herding a flock of flying pigs. Meanwhile fascism sneaks into fantasia.

 

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