SIR Mervyn King fired a parting shot at banks yesterday as he attacked lenders for their intense political lobbying against tougher balance sheet rules.
In his last appearance in front of MPs on the Treasury Select Committee before handing the reins to Mark Carney next week, the Bank of England governor said banks sought to put “tremendous pressure” on politicians at the highest levels to lean on regulators to water down demands to raise capital strength.
He said there were “certainly calls made to Number 11 [Downing Street] and even in some cases Number 10” to put pressure on the Prudential Regulation Authority (PRA).
The City watchdog last week told banks they must stump up another £13.4 billion to plug a higher-than-expected £27.1bn hole in their finances under plans to ensure bank finances are strong enough to withstand future shocks.
“Very often it was the first response” by banks to call politicians following confidential discussions with regulators, he added. He praised the PRA for maintaining its independence, but said lobbying must stop.
Sir Mervyn also hit out at governments worldwide for failing to take advantage of the opportunity offered by huge money-printing programmes to rebalance their economies.
Asked by MP Andrea Leadsom if governments had “blown” the window created over the past five years, he said they had “failed to take advantage of the time we have created”, adding: “They haven’t blown it yet – there’s still time.”
He said the UK was not near the point where quantitative easing (QE) could be unwound and called on the government to rebalance the economy and address the trade gap while still supported by monetary efforts.
Sir Mervyn, who was outvoted once more this month in his call to extend QE by £25bn to £400bn, said the UK recovery was “too weak to be satisfactory” despite mounting signs of improvements in key sectors.
The Bank told the cross-party committee it would be “careful and cautious” about unwinding QE, but it was premature to consider reducing the programme or raising interest rates.
After the hearing, committee chairman Andrew Tyrie called on Chancellor George Osborne to look into Sir Mervyn’s claims of political lobbying by banks. Mr Tyrie cited testimony from Sir Mervyn to the committee that suggested “unacceptable” behaviour toward the Prudential Regulation Authority.
He added: “Representations of the views of banks are desirable. Attempts to influence the independent regulator are unacceptable. The Bank of England should make its judgments independently.”
Mr Osborne said: “Of course, if there is unacceptable pressure, I absolutely say that is not acceptable. The PRA, which we created, is completely independent and it has made its independent decisions on capital in our banks. We also have a Financial Policy Committee which again is completely independent and able to make these recommendations.
“We empower our regulators to do their job. Of course banks, consumer groups, anyone else can make their case, but ultimately it is an independent body and independent regulator that makes the judgment. That is the system we have created.”