Leaders: Even Sir Mervyn King cannot escape the fall-out

Published on 30/06/2012 00:00

WILL all those politicians who wish to condemn bankers’ behaviour please form an orderly queue. From the Prime Minister down, there has been no shortage of ministers, MPs and MSPs coming forward to heap opprobrium on the shoulders of the former “masters of the universe” who have brought the banking industry in this country to its knees.

Politicians are, no doubt, genuinely shocked by the reve- lations that Barclays tried to rig the London Inter-Bank Offered Rate (Libor) and at yesterday’s disclosure by the Financial Services Authority that banks, including RBS, HSBC, Barclays and Lloyds, mis-sold highly complex insurance products to thousands of small businesses.

Yet there is an element of faux outrage about their remarks. For these are the same politicians who, in government in Labour’s case, or at the time in opposition as the Tories were, went along with the idea of “light touch” policing of the banks after heavy lobbying by the industry accompanied by dire warnings of the dangers of over-regulation.

So who to turn to for sober commentary and analysis? Who better than the Governor of the Bank of England, Sir Mervyn King, who yesterday called for a change in culture in banking, including a clampdown on excessive pay levels, improving “shoddy treatment of customers” and tackling “deceitful manipulation” of Libor. Alongside the change of culture, Sir Mervyn called for “leadership of an unusually high order and changes to the structure of the industry”.

Given what we know now – from the crash of 2008 to the Libor manipulation to Personal Protection Insurance and to yesterday’s revelations – the Governor’s words are wise. Doing as he suggests would mean, first, a clean sweep of the senior management at many banks, and then an overhaul of the way they work coupled with, as we argued here yesterday, far tighter regulation.

So far, so reasonable, and yet we should not rush to canonise Sir Mervyn after his intervention. He has been part of the system which has overseen the banks. He was chief economist at the Bank of England from 1991, then Deputy Governor from 1998 to 2003, when he took the top job. As such, he was there when Gordon Brown set up the FSA in 1997, one of the three bodies in a new “tripartite” supervision arrangement along with the Bank and the Treasury.

This arrangement – judged, for obvious reasons, to have failed – is now to be scrapped, with the FSA coming under the Bank’s wing. But as a participant, Sir Mervyn cannot escape some responsibility. The Bank of England, under the current arrangement, was responsible for risk-assessing high street banks and for liaising with the FSA. So while his suggestions for change strike a sensible chord, the Governor could have done himself some good by first admitting that he has been part of the problem he is putting forward sensible plans to fix.

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