Coffee House

How Mervyn King’s role has changed

12 March 2012

A week devoted to Mervyn King and his eight-year reign at the Bank of
England sounds like pretty turgid stuff. But, already, the series that has started in the Times (£)
this morning — building up to an interview with the man himself — is anything but. Here, for instance, is a snippet from one of its articles, by David Wighton, on how Mr King reacted to
the crumbling of Northern Rock:

‘As the plight of Northern Rock and other banks worsened, Sir John Gieve and Paul Tucker were urging Sir Mervyn to act, but he would not budge. “He mocked them as ‘crisis
junkies’ and more or less accused them of enjoying it,” one former official says.

Sir Mervyn took a different approach. “He locked himself in his room for several days and wrote a great essay entitled Turmoil in Financial Markets: What Can Central Banks

On September 12 members of the Court [i.e. the Bank’s board] met to be told Sir Mervyn wanted them to read the essay, which he was sending to the Treasury Select Committee. Several
directors expressed concern about the letter, which emphasised the risks of moral hazard and concluded that the turmoil had “disturbed the unusual serenity of recent years, but, managed
properly, it should not threaten our long-run economic stability”.

The next day Britain was on the brink of its first run on a bank since 1866. The members of the Court were phoned by the Bank. They were told to go to the McDonald’s by Liverpool
Street Station and await instructions.’

This story is unsurprising: Alistair Darling, in his memoirs, attacked King for advocating a more hands-off approach to the Rock. But it does highlight one of the major inconsistencies
of the current arrangement along Threadneedle Street.

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When the Bank was made independent, it was meant to be made blander in the process — its purpose reduced to little more than meeting an inflation target set by Gordon Brown. The appointment
of King as Governer then reinforced this idea. He was a quiet, bookish man for a quiet, bookish task. But, of course, all this changed with the financial crisis. King has been put in a far more
prominent, more urgent position than he ever would have expected. As his subsequent comments have
demonstrated, he can no longer be just a writer of essays, but almost unavoidably a political actor — someone whose public views, on everything from quantitative easing to public spending,
carry great import for the nation, and all that.

This is something that George Osborne should consider as he decides upon King’s successor, particularly as the Bank is gaining more responsibilities for regulating the financial sector. The role is
bland no more. As with normal politicians, it needs to be scrutised more closely. 

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Show comments
  • daniel maris

    Rhoda – You’re on form. LOL – after having seen off that Louise Cooper as well. :)

  • ButcombeMan

    “History will be very unkind to this lightweight; he’s up there with Brown in the blame game”.

    Exactly right, those two economic incompetents and Alan Greenspan are the ones I blame.

    I cannot understand how King is still in his job.

  • Widmerpool

    The Big Macs Meeting story has been going round the City coffee houses for sometime. No doubt it will become part of City folklore as did the Head of Banking Supervision moving onto a camp bed into his office in 1974! At least that guy seems to have done a better job than King he was quicker off the mark and not hog tied by “moral hazard”.

    Who gets retired first King or Cable?

  • Kevin

    “As with normal politicians, it needs to be scrutinised more closely.”

    It needs to lose its independence and be brought back under democratic control.

  • TomTom

    Michael M, they are using Darling’s book as source material. Northern Rock was a Labour slush fund as asset valuations reveal….it was Gordon Brown’s call

  • daniel maris

    Well I had never heard of this before but it confirms me in my view that King is completely incompetent. His forecasts are always way, way out. He should have been sacked ages ago.

    I was never a fan of handing over control of interest rates to the Bank of England.
    If you have good governance you don’t need such arrangements. But I suppose alcoholics have a right to ask that someone else take care of the whisky bottle.

  • michael m

    Mr Wighton and the Times could at least get their facts right. According to the Times, The Governor was at Wimbledon watching the tennis ” whist two banks were on the verge of collapse” Nonsense- Wimbledon finals are in the first week of July and RBS/HBOS were not on the verge of collapse until at least 3 months later after the fall of Lehmans.

  • Archimedes

    Personally, I think it’s pretty awesome that the economy was just about to fall apart and Mervyn King said, “Nonsense. I’m going to write an essay and smoke my pipe.”

    Is this not Britain? We wouldn’t want to panic about this sort of thing.

  • Rhoda Klapp

    The loo is free in McDs. It is damn expensive in Liverpool Street station. That info is more useful than anything else you are likely to read today.

  • Percy

    The most amazing thing about King is that he still has a job. History will be very unkind to this lightweight; he’s up there with Brown in the blame game.

  • Moriarty

    “…they were told to go to MacDonalds at Liverpool Street Station…”.

    Bit harsh isn’t it? Even Fred Goodwin got off more lightly than that.

  • Andy H

    Cometh the hour……cometh the essay.
    This is exactly what happens when these institutions are run by academics.

  • TomTom

    The Civil Contingencies Act 2004 should have been used by the Government. It was not the Bank of England responsible for Northern Rock but The Treasury and it should have seized control…..if it can use Anti-Terror legislation against Iceland it can surely deal with Northern Rock.

    Gordon Brown was personally responsible and Matt Ridley inherited his father’s job (Nicholas Ridley) as Chairman of the Board at £300,000pa. What responsibility did he have ?

  • Rhoda Klapp

    Seems to me that they would be well-advised to ignore those of a banking background in favour of somebody familiar with printing in large volumes when recruiting the successor to the King.

  • tb

    At least he spent the time getting his pension inflation proof…

    For somebody whose job it is to control inflation, they’re pretty unsure about their ability to do the job.

  • jebediah

    King has been pretty poor. The central bank is supposed to the lender of last resort. Moral hazard prevarication nearly led to major banks collapsing. This would have been a disaster on a massive scale. Put out the fire first before worrying about rebuildig the neighbourhood. As for inflation, well, can anybody explain why British inflation has been consistently higher than French or German inflation? They have to import commodities too.

    The man shold have been fired.

  • Lord Blagger

    How has Merve the Swerve done on controlling prices?

    Pathetic is the simple answer.

    Each time he writes a letter to the Chancellor is just like a snivelling school boy saying,

    “Please please sir, let me have another go”

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