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Mervyn King: without bank reform another financial crisis is ‘certain’

Mervyn King: without bank reform another financial crisis is ‘certain’ – Editor
Lord Mervyn King

An article appearing in the newspaper The Guardian on 28 February 2016 [1] reports the statement by former Bank of England governor Lord Mervyn King in his new book [2] that imbalances in the global economy makes a new crash inevitable: ‘failure to tackle the disequilibrium in the world economy makes it likely that a crisis will come sooner rather than later’.

Mervyn King was governor of the Bank of England between 2003 and 2013, and thinks the global economy will soon face another crash because regulators and legislators have failed to reform the banking industry. In his new book he also claimed that the 2008 crisis was the fault of the financial system, not individual greedy bankers: “Without reform of the financial system, another crisis is certain, and the failure … to tackle the disequilibrium in the world economy makes it likely that it will come sooner rather than later.

The newspaper reported Mervyn KIng’s statement that global central banks were caught in a “prisoner’s dilemma” – unable to raise interest rates for fear of stifling the economic recovery. Along with a remark from a Chinese colleague who said the west had not got the hang of money and banking was the inspiration for his book.

Lord King also said that without under- standing what caused the crash, politicians and bankers would be unable to prevent another, and lays the blame at the door of a broken financial system: “The crisis was a failure of a system, and the ideas that underpinned it, not of individual policymakers or bankers, incompetent and greedy though some of them undoubtedly were.”

Referring to spending imbalances – both within and between countries – as the cause of the 2008 crisis, he believes there is evidence of a current disequilibrium which will lead to the next. Lord King suggests the problem may be resolved by raising productivity and boldly reforming the banking system.

He said: “Only a fundamental rethink of how we, as a society, organise our system of money and banking will prevent a repetition of the crisis that we experienced in 2008.”

Lord King has been criticised for failing to see the global financial crisis coming. He was in charge of the BoE when the credit crunch struck in 2007, leading to the collapse of numerous U.K. lenders.

1. http://www.theguardian.com/business/2016/feb/28/mervyn-king-new-financial-crisis-is-certain-without-reform-of-banks

2. M.A. King, The End Of Alchemy: Money, Banking And The Future Of The Global Economy (Little Brown, Mar 2016). This book was serialised in The Telegraph.

Mervyn Allister King, Baron King of Lothbury, KG GBE FBA (born 30 March 1948) is a former Governor of the Bank of England and Chairman of its Monetary Policy Committee from 2003 to 2013. He had been Deputy Governor from 1998 to 2003, Chief Economist and Executive Director from 1991, and a non-executive director of the Bank from 1990 to 1991.

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