King defies City critics
MERVYN King hit out at his increasing number of critics in the City and Westminster last night, saying “vested interests” who wanted to defend their bonuses and profits were no match for a central bank with “over three centuries of history”.
In an extraordinary attempt to defend his record in power, he said he had seen the crisis coming but had been powerless to stop it because the Bank’s wings had been clipped in 1997.
His comments at the BBC’s Today Programme lecture will raise eyebrows in the City, where a growing number of players privately argue that he failed to hike interest rates during the bubble years and refused to provide enough liquidity to the financial system during the early months of the financial crisis, making matters worse.
But King said he did try to warn regulators and banks and that nobody listened to him. He said he wished he had shouted louder.
Striking a defiant note, King defended the wide-ranging powers he is poised to grab and claimed his reforms to the banking system will have a long-term impact on the UK. He said that he is seizing this “historic opportunity” to pass on a legacy of economic stability.
King defended his record in office, arguing that he was successful in the role he was given, and that inflation was under control before the crisis.
The new structure of the Bank seeks to focus on the big picture, recognising and acting on risks preemptively – which he says should always have been in the Bank’s power. King said: “Already we see vested interests rise up to defend their bonuses and profits. But, as an independent central bank with over three centuries of history, we can resist those short-term pressures and take the longer view needed to prevent another crisis.”
But critics believe that the Bank is being unrealistic in believing that pay and dividends can be slashed. They also argue that his desire to hike capital requirements – discussed again yesterday – have gone too far and are the main reason for the scarcity of credit.
Recent Bank critics include Treasury Select Committee chairman Andrew Tyrie, who warned new banking rules could worsen the squeeze, ex-MPC member Andrew Sentance who thinks King is risking inflation; Peter Sands of Standard Chartered; and David Cumming of Standard Life.