“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.”
Looking back at the events since global financial markets froze up in August 2007, King said the Bank had not imagined the scale of the disaster that would occur when the risks it had identified crystallised. The crisis led to a three-day run on Northern Rock – the first on a British high street bank since the 1860s – and, a year later, the part-nationalisation of Royal Bank of Scotland and Lloyds Banking Group.
“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,” King said.
“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.”
The financial crisis led to the deepest slump in the UK output since the second world war, but King defended the Bank’s handling of monetary policy in the pre-crash years. Recessions, he said, were supposed to follow booms and periods of high inflation: there seemed no reason in this case to expect the worst recession since the 1930s.
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