Governor criticises government (again)
Mervyn King has tonight said that the Bank of England has insufficient powers to carry out its new legal responsibility to promote financial stability.
In remarks that are likely to prove highly embarrassing for the government, he said at the Mansion House tonight that: "It is not entirely clear how the Bank will be able to
discharge its new statutory responsibility if we can do no more than issue sermons or organise burials."
His reference to "burials" is a reference to the Bank of England's role as the administrator of the assets of banks that have collapsed.
He is bound to be seen as attacking the man sitting next to him at the annual Mansion House dinner in the City of London, the Chancellor of the Exchequer - in that the Treasury has resisted significant changes to the allocation of regulatory responsibilities between the Financial Services Authority, the Treasury and the Bank of England, the so-called Tripartite.
However, what he said may well be music to the ears of the shadow Chancellor, George Osborne, who is understood to have been planning to call for more powers to be given to the Bank of England to oversee financial institutions.
Mr King's complaint is also particularly resonant today, because the US President is announcing that he would be giving sweeping new authority over financial institutions to the US central bank, the Federal Reserve.
The Governor appeared to differ from the Chancellor - in tone if not explicitly in content - in respect of another hugely important area of banking reform, which is whether some banks have become far too big for the health of the economy.
The Governor said: "If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not
sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure."
By contrast the Chancellor told the same City audience that "The solution is not as simple, as some have suggested, as restricting the size of banks. We have learnt that you don't necessarily need to be a big bank - or indeed a complex one - to threaten to bring the system down."
Mr King also gave a sound ticking off to his City audience for the way they had let down the people of Britain. This is what he said:
"The costs of this crisis are not to be measured simply in terms of its impact on public finances, the destruction of wealth, and the number of jobs lost. They are also to
be seen in the lost trust in the financial sector among other parts of our economy.
"For a generation or more, businesses and families up and down the country were told, not least by the City, that the disciplines of the market economy were essential, even if painful in the short run, for greater prosperity in the longer term. That belief in the merits of a market economy was embraced and for many years was not misplaced.
"But out of the blue - in this case the financial sector - came a crisis that did not stem from weaknesses in the real economy. It has wreaked havoc on those same businesses and families. Unemployment, as we saw in today's figures, is rising sharply.
"And yet it is the banking system that has received financial support on an almost unimaginable scale. We who work in the financial sector have much to do to regain the trust of those who work outside it. "My word is my bond" are old words, but they were important. 'My word is my CDO-squared' will never catch on."