Mervyn King admits failure over banking crisis

Mervyn King admits he should have done more to avert banking crisis Credit: REUTERS/Darren Staples

The Governor of the Bank of England has admitted that he and his colleagues should have done more to avert the banking crisis.

Sir Mervyn King said they should have "shouted from the rooftops" that banks had been allowed to borrow and lend too much.

He said he sympathised with those who felt angry about the factors that sparked the deep recession and led to the loss of one million jobs.

To many of you, this will seem deeply unfair, and it is. I can understand why so many people are angry.

He also said the Bank should have done more to convince the Government to recapitalise banks sooner and said a decision to take away the power of regulation from the Bank in 1997 returned "to haunt us".

Sir Mervyn also urged the Government not to delay reforming the financial sector, with a new Financial Policy Committee set to take control of regulating the City next year.

He said that further reform was "essential" and called on ministers to bring in the Independent Commission on Banking's recommendations to force banks to separate their retail and investment banking arms "sooner rather than later".

He insisted the Bank was still "up to the task" of regulating the City.

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.

Mervyn King claimed there no boom or period of high inflation to suggest a crash Credit: REUTERS/Andrew Winning

Sir Mervyn said there had been a "failure of imagination" to appreciate that some of the biggest banks, such as Royal Bank of Scotland and Lloyds, could need a bail-out.

He claimed this was partly because there had been no boom or period of high inflation to suggest a crash.

Former colleagues on the MPC have turned on Mervyn King Credit: Bank of England

Mervyn King's former colleagues have wasted no time in criticising their ex boss.

Andrew Sentance, who served on the Bank of England's Monetary Policy Commitee (MPC) until May last year, feels Sir Mervyn made mistakes.

David Blanchflower, who was a member of the MPC until 2009, went further by calling for major changes at the Bank.

Mervyn King says the banking crisis has "cast a long shadow". Credit: REUTERS/Toby Melville

Sir Mervyn admitted that the present crisis was "far from over", with the eurozone debt crisis ever looming, the UK's economy not back to health yet and inflation still too high.

He added that dealing with the consequences of our "bad banking situation" is likely to be "a long, slow process" and "the crisis has cast a long shadow".