Bank Of England Admits Failure To Warn Of Financial Crisis Risks
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Bank of England Governor Sir Mervyn King has conceded for the first time that U.K.’s central bank should have properly identified and warned about the risks facing banks in the run-up to the 2008 financial crisis, and has vowed to take unpopular measures in the future to prevent banking excesses.
“We did preach sermons about the risks. But we didn’t imagine the scale of the disaster that would occur when the risks crystallised,” King said.
Bank of England Governor Sir Mervyn King has conceded for the first time that U.K.’s central bank should have properly identified and warned about the risks facing banks in the run-up to the 2008 financial crisis, and has vowed to take unpopular measures in the future to prevent banking excesses.
“We did preach sermons about the risks. But we didn’t imagine the scale of the disaster that would occur when the risks crystallised,” King said.
[quote]“With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called ‘light-touch’ regulation hadn’t prevented any of this,” he said during an address on BBC Radio, as cited by Reuters.[/quote]The U.K.’s economy contracted by more than 7 percent during the 2008-09 financial crisis and its budget deficit became one of the highest in the world, at more than 11 percent of GDP, after spending cash on bank bailouts.
But while King admitted to his own failures to the lead-up to the financial crisis, he also blamed the previous Labour government for stripping the central bank of its power to regulate banks. This left him unable to do more other than “issue reports and preach sermons.”
“So why, you might ask, did the Bank of England not do more to prevent the disaster? We should have. But the power to regulate banks had been taken away from us in 1997. Our power was limited to that of publishing reports and preaching sermons. And we did preach sermons about the risks.”
[quote]“And in the crisis, we tried, but should have tried harder, to persuade everyone of the need to recapitalise the banks sooner and by more. We should have preached that the lessons of history were being forgotten – because banking crises have happened before,” King said, as quoted by The Guardian.[/quote]The central bank governor also took the time to criticise the banking system, which he believed had “overextended” itself just prior to the financial crisis.
“On all sides there was a failure of imagination to appreciate the scale of the fragilities and their potential consequences”.
[quote]”In good times, banks took the benefits for their employees and shareholders, while in bad times the taxpayer bore the costs. For the banks, it was a case of heads I win, tails you – the taxpayer – lose.”[/quote]Related: Can Consumers & Taxpayers Be Saved From The Bonus-Crazed Financial Sector?
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King, who will retire in June 2013, now believes that the Bank of England will be “up to the task” of regulating the banking industry, with the power to do so shifting back to the central bank.
“Our role will be to take away the punch bowl just as the next party is getting going,” King said.
“That won’t make us popular among bankers, politicians and even at times some of you, and it’s not supposed to. But it will, I hope, reflect the trust and confidence that the citizens of this country can place in the Old Lady of Threadneedle Street (a nickname for the Bank of England.”
