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Bank of England Governor admits failures

Mervyn King has been Governor of the Bank of England since 2003. Photo: Reuters

In his well-mannered and moderate way, the governor of the Bank of England delivered a lecture tonight and rarely on camera, took questions from some members of the public at an event in Central London.

Speaking for the first time since it was confirmed that we slid back into a double dip recession, Sir Mervyn King rehearsed the problems of the banking sector that gorged itself on opportunity before the recession and of the need for reform.

He admitted that the Bank, as well as the other regulators and Government had not had the 'imagination' to see what was coming before the crash.

And he suggested that the Bank should have taken steps earlier. He said the Bank should have "shouted from the rooftops" that banks had been allowed to borrow and lend too much. And it should have done more to convince the Government to recapitalise banks sooner.

Although it has probably escaped the majority of the public, the Bank of England is about to take on an enormous amount of power to regulate and control the whole financial system, on top of their current responsibilities for setting interest rates and controlling inflation.

In part, perhaps his appearance tonight was an attempt to explain why that is, in his view, necessary, and to defend the planned reforms to those who object.

The Bank's new Financial Policy Committee will have the power to step in and prevent a hangover by taking away the punchbowl just as the party in the financial system is getting going.

That won't make us popular among bankers, politicians and even at times some of you, and it's not supposed to.

But it will, I hope, reflect the trust and confidence that the citizens of this country can place in the Old Lady of Threadneedle Street.

He warned off those who are objecting and said that "vested interests" are out to protect their own profits and bonuses, saying that people will "always push back and prevaricate." And he urged the Government to carry forward the plan to separate partially high street banking from investment banking.

Sir Mervyn did say "eventually I promise" that things would return to some kind of economic normality.

Asked by someone whose savings have been damaged by quantitative easing he said he had "enormous sympathy" for pensions but that young people had suffered too through high unemployment.

And he warned that the alternative to QE, increasing interest rates, would lead us to "deep recession."

But if you were hoping for an upbeat verdict on what is to come you would have been disappointed.

The governor closed his lecture warning "the present crisis is far from over...the recovery is proving slower than we had hoped...dealing with the consequences of our bad banking situation is likely to be a long, slow process."

And summing up the Bank's new duty to stop another banking slump he said: "Our role will be to take away the punchbowl just as the next party is getting going."

As he suggested that might not make him and the institution popular in the City, but in the last few years there are plenty there who have already been frustrated by how the Bank has behaved.

PS Unfortunately there was hardly any mention, and no questions about the Bank's main duty, that affects families all around the country, keeping inflation down. For many many months, the bank has missed it's target of keeping it at two per cent or below.

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