Mervyn King became the most powerful governor of the Bank of England in living memory today after George Osborne gave him sweeping powers to curb City excesses and prevent another financial crash. King emerged as the big winner from the chancellor's shakeup of supervision that will abolish the Financial Services Authority and do away with the tripartite system of regulation introduced by Gordon Brown in 1997.
Used car salesmen to regulate used car salesmen shocker
Despite facing his own critics during the financial crisis of the past three years, King said tonight that the Bank was determined to meet its inflation target and to construct a framework for financial stability to match that for monetary stability. "We need both," King said. "As we have seen, one without the other is not enough. Just as the role of a central bank in monetary policy is to take the punch bowl away just as the party gets going, its role in financial stability should be to turn down the music when the dancing gets a little too wild."
Supervision of individual banks would be carried out by the prudential regulatory authority, a legally separate but subsidiary part of the Bank that will replace the FSA in 2012. King will chair the authority's board, but it will be run on a day-to-day basis by Hector Sants, the current chief executive of the FSA. The current chairman of the FSA, Lord Turner, was being seen as a possible successor to King when his second five-year term as governor ends in 2013.
Osborne said tonight: "At the heart of the crisis was a rapid and unsustainable increase in debt that our macroeconomic and regulatory system utterly failed to identify let alone prevent. No one was controlling levels of debt, and when the crunch came no one knew who was in charge." The government will also establish, what Osborne called a "powerful new Consumer Protection and Markets Authority", which will regulate the conduct of every firm authorised to provide services to the public. The body will "ensure the integrity of the UK's financial markets in order to preserve their reputation for transparency and efficiency as well as the UK's reputation as one of the world's leading global financial centres," the chancellor said.
King, who will now be in charge of macro-prudential supervision as well as interest rates said tonight: "I welcome these new responsibilities. Monetary stability and financial stability are two sides of the same coin. During the crisis the former was threatened by the failure to secure the latter." He added that the crisis showed that when banks ran into trouble the Bank of England needed to be fully involved. "The Bank of England cannot effectively perform its role as lender of last resort without first-hand knowledge of the health of the banks to which it might provide support," he said.
The Guardian
The Guardian
