Mervyn King, Governor of the Bank of England, has launched a landgrab for the role of overseeing financial stability in the future.  His record isn’t very impressive, however: the Bank had wound down its financial stability operation shortly before the credit crunch burst on the scene.  In April 2007, he let go Alastair Clark, a Bank veteran with 36 years’ service who was executive director for financial stability – without appointing a replacement.  Clark’s responsibilities were divided between three others, including the deputy governor for financial stability – a former Whitehall mandarin ill-suited to the role.  King was forced to recall Clark in October 2007 to advise him on the dealing with the aftermath of the Northern Rock crisis.

By the time Clark was recalled, King was under fire for his handling of the growing financial crisis.  He was criticised for failing to provide support for Northern Rock that could have avoided the humiliation of the UK’s first run on a bank in more than a century.  He was also forced into executing a U-turn to inject liquidity into the banking system as everything went pear-shaped.

One of those who publicly criticised the Governor at the time was Hector Sants, chief executive of the Financial Services Authority.  No wonder King doesn’t want to share responsibility for financial stability with the FSA – even though Lord Adair Turner, FSA chairman, has suggested that the joint committee to deal with the issue should be chaired by King.

Postscript: Mervyn King is right about one thing, though  The UK is now building up the biggest budget deficit in recent peace-time history because the public finances were in a bad shape when the credit crunch began.  If there had been a 3% budget surplus instead of a 3% deficit – as there should be when the economy is prospering – the deficit would now be much more manageable.  Who was the guilty man?  Some bloke called Brown who was Chancellor of the Exchequer for 10 years.

John Willman Open Posts King Sants Brown