Darling reveals strained relationship with Mervyn King during banking crisis
Monday, 05 September 2011 10:06
The Former Chancellor, Alistair Darling, who was in charge of the Treasury during the 2008 banking crisis has revealed in his memoirs that he felt the governor of the Bank of England, Mervyn King, did not fully understand the nature of the problems that were causing the financial crisis in 2008.
Mr Darling criticises Mr King in the book, saying that his relationship with leading bank executives was “distant”. He was so concerned over the lack of action by Mr King on liquidity and bank lending that he asked Treasury officials if legal action could be taken to force the bank to take action.
The Treasury advised him that it was legally possible but that it could cause a big public row.
Mr Darling says that Mr King was right in his analysis that part of the banking crisis was caused by banks not holding enough capital, but that Mr King did not accept that there was a second problem, that of a lack of liquidity or banks not lending to each other.
The book reveals the differences between the two men over how to deal with the banking crisis. Mr Darling wanted to inject cash into the UK financial system, but Mr King was reluctant to intervene, saying that it is not the job of the central bank to assist banks in their continued profligacy.
Mr Darling writes: "Our conversation was further evidence to me of just how poor was the relationship between the Bank of England and Britain's largest banks."
“It is an essential part of the governor’s role to understand what is going on, but it is not something that can be written into legislation, and I suspect that the bank considered it to be the job of the Financial Services Authority.
On his personal relationship with Mr King, Mr Darling writes: He had a quietly considered, slightly impish style that I liked. He could also be incredibly stubborn. There are times when this is an ideal quality for a governor, but equally it could be exasperating. We had our disagreements, but at the height of the banking crisis he did what was needed.”
In an interview on the BBC’s Andrew Marr show, Mr Darling said that the Bank of England needs to change its structure. In the book, Mr Darling notes: “The core problem with the Bank is the way it is run as an autocratic fiefdom of the governor, which is anachronistic.”
Mr Darling also talked of the impending publication of the Independent Commission on Banking. He said that the expected proposals, that of separating the retail and investment arms of UK banking operations would not stop another banking crisis.
He appeared to side with the banking industry in suggesting that the likely reforms would drive many banking operations away from the UK.
Use the Myfinances.co.uk comparison tables to find the best deal on a new bank account.
Comments
Newsletter sign up