The Question Remains: Is King Up to the Job?

Article excerpt

On Tuesday, Gordon Brown appeared with his fellow European Union leaders to declare they were committed to bringing greater transparency to banks. The following day, Chancellor Alistair Darling said he was changing the rules to allow the Bank of England to launch rescue missions in secret.

Transparency is a wonderful thing. If only we had more of it in politics. Yesterday's Winograd Commission report, examining Israel's invasion of Lebanon last year, was a model for the examination that should have taken place in Britain over our invasion of Iraq. But transparency of itself doesn't make better decisions, although it may help prevent bad ones. Take the action to rescue Northern Rock, which has caused so much angst within government and led to such agonising over the decision to re-appoint the Bank of England's Governor, Mervyn King. The fact is we still don't know - and may not know for years - just what were the debates that led to the belated and dramatic decision to guarantee depositor funds after the scenes of investors queuing up to withdraw their money.

Mr King said the Bank was caught out by the crisis, as was the Treasury, because the law did not give the kind of depositor protection and insolvency rules which would have allowed Northern Rock to fail. Even efforts to prop up Northern Rock before its problems became public were stymied by a rule that insisted the Bank declare any support, while any state-aided takeover could have left the Government open to lawsuits from rival banks citing unfair competition.

All that may be true. But it is also true that Mr King, from what we know, was terribly slow to realise the scale of the Rock's problems, refused to pump liquidity into the market on the grounds that this would merely protect Northern Rock and others from the consequences of their own bad actions, that he was reluctant to make the Bank of England leader in any rescue, and he was notoriously unwilling to accept any responsibility for the fiasco after the event.

The result in human terms is that we now have a Governor who no longer has the confidence of the Chancellor and the Prime Minister, who were nonetheless forced to re-appoint him for fear of the signals it might send to the financial community. Mr King, meanwhile, feels deeply resentful at the political attacks on him and, to all appearances, still does not believe he could have done anything different in the Northern Rock crisis, let alone the general credit squeeze brought on by the sub-prime mortgage dealings of the international banks. …