Bank of England governor Sir Mervyn King brought down the curtain on 16 years of policymaking yesterday, and it was a subdued business-as-usual rather than any swansong pyrotechnics.
Interest rates were pegged by the monetary policy committee King chairs at a record low of 0.5 per cent, where they have remained since March 2009 in a lengthy battle to stop a double-dip recession turning into a depression.
The MPC also voted yet again against any ramping up of quantitative easing. That has contrasted with the increasingly doveish King, who has been voting for pumping more money into the system to stimulate bank lending since last February without persuading most of his colleagues.
What will history make of his time at the MPC, most importantly in his past ten years as governor? It will probably be a mixed report card.
The financial crisis happened on King’s watch. The BoE had responsibility for monitoring systemic risk. Therefore, during King’s tenure the central bank was clearly part of the wider regulatory failure as the crazy game of pass-the-opaque-sub-prime-parcel was played out in the banking industry and nearly did bring the whole system down.
Only multi-billion pound taxpayer bailouts helped save the day in the UK, a legacy we are still living with. Also, following the collapse of Northern Rock in 2007, King seemed to drag his feet while others called for immediate action.
The governor seemed more concerned about the potential undesirable side-effect of encouraging moral hazard in the industry – ever‑riskier behaviour because of the banks’ belief the authorities would act as backstop to their more egregious lending.
But King does not deserve pillorying, either.
He had to operate within the deeply flawed tripartite system of regulation embracing the BoE, the Financial Services Authority and the Treasury that Gordon Brown had ushered in after Labour was elected in 2007.
It was not an easy hand for King to play. His consistent argument for keeping interest rates at record lows for so long, and accepting some inflationary pressures for doing so, also deserves credit.
Millions of British households are struggling with austerity. Things are bad enough with rates at 0.5 per cent, imagine how bad they might be with rates at 3 or 4 per cent. We also don’t know how bad things would be for the economy without those large doses of QE he has championed.
King’s appearances at the Treasury committee and public speeches have also shown a governor deeply aware of the social pain for households and instability for businesses caused by the sins of the banks.
He is no cold numbers man, but has repeatedly talked of the unfairness of the righting of the banking crisis falling onto the backs of ordinary working people.
King does not leave office unblemished, but is certainly not the villain of the piece. We should wish him a good retirement.
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