THE Bank of England’s response to the global financial crisis was “exciting” to work on and prevented another Great Depression, its former governor, Mervyn King, has said.
Lord King claimed his actions, alongside Ben Bernanke, ex-chairman of the US Federal Reserve, prevented a repeat of the economic depression of the 1930s in the UK and the US.
The peer, who headed Britain’s central bank during the crash, revealed that once US banking giant Lehman Brothers collapsed in late 2008, triggering the beginning of the worldwide economic collapse, he found the crisis easier to handle.
As head of the Bank’s monetary policy committee between 2003 and 2013, King was at the heart of the response to the global crash, as he was in charge of setting interest rates and controlling the supply of money.
He told BBC radio yesterday: “It was exciting and it was fascinating and it was the sort of problem that we had trained to deal with over many years.
“So I think both Ben [Bernanke] and I felt that, having spent a good deal of time thinking through the intellectual foundations of what to do with a banking crisis, the opportunity to deal with one was one that we were well prepared for.
“And I think that the harder the problem, the more dramatic problem in October 2008, the easier it was to deal with because the solution was more obvious. It was trickier back in 2007, when it was actually less obvious.”
The effects of the financial crash are still being felt around the world, with the eurozone facing crisis and the nature of Britain’s economic recovery set to be a central issue in next year’s general election campaign.
King also defended his programme of quantitative easing (QE), which involved creating new money for Britain’s financial system, saying it prevented a “disaster”.
Asked whether he should have been more transparent over the practice, as new Bank governor Mark Carney has sought to do, King said: “I think we had a great deal of transparency and indeed the Bank of England was at the forefront of introducing transparency from 1992 onwards.
“But I think there is a big difference between explaining why you are taking actions and saying what things you think will result from it which are positive in nature, from saying we are taking actions to prevent a disaster occurring.
“Earlier in the programme we were hearing about Greece – Greece did not prevent something terrible happening, Greece has been through a repetition of the Great Depression as far as it’s concerned.”
King was yesterday a guest editor of the Radio 4 Today programme and interviewed Bernanke. The American said central bankers tried not to think of the global consequences of their actions to help focus on their response to the crisis.
Bernanke said: “It certainly was a lot of stress; the crisis was so complicated, there were so many different aspects to it and the response of the Federal Reserve and the Bank of England was so complex and so many moving parts that I felt like a pilot in a cockpit, always trying to keep my eye on every light that was going red.”
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