The Warrior King: Throughout the Credit Crunch, the Governor of the Bank of England Has Been a Trenchant Critic of and Direct Challenge to the Government, Pushing His Independence to the Limit. So Who Is He? What Does He Want? and Will He Emerge as the Real Hero of the Crisis?

Article excerpt

When Mervyn King, the governor of the Bank of England, stood up in the grand setting of the Mansion House in the City of London on the warm evening of 17 June, with the Chancellor Alistair Darling sitting just a few seats away, he did what he has done throughout the financial crisis: he challenged the government directly. National debt, he warned, was dangerously high, "at more than double the levels before the crisis".

Banks had become too big and the Bank of England itself needed greater powers. "The Bank finds itself in a position rather like that of a church whose congregation attends weddings and funerals, but ignores the sermons in between."

In a televised appearance in front of the Treasury select committee just a week later, King went further and all but accused the Prime Minister of carelessness with the public finances. "We are confronted with a situation where the scale of the deficits is truly extraordinary," he said, and noted, in an aside that perplexed the Treasury, that the Chancellor had not bothered to consult him on changes to banking legislation that would directly affect the Bank of England.

King is an unlikely rebel. Quietly spoken and cerebral, he is the first governor of the Bank of England to have been a full-time academic: before joining in 1991, he was a professor of economics at the London School of Economics. Yet, since the credit markets first froze over in August 2007, he has been in pugnacious mood and continuously in conflict with the Treasury and the Prime Minister. At times, throughout what is the worst financial crisis since the period leading up to the First World War, the relationship between King and the government has been radioactive.

Some Treasury insiders go so far as to accuse King of being concerned about protecting his reputation and that of the Bank to the detriment of everyone else involved in stabilising the financial system and preventing a cataclysmic collapse.

The authority of Bank of England governors once stemmed from the dignity of the office they held. The authority of the present governor stems entirely from his intellect. In the past, governors were drawn largely from the banks of the City of London. When these stately figures moved from the parlours of the old merchant and clearing banks to Threadneedle Street, to be protected from the outside world by the great curtain wall designed by Sir John Soane, they transmogrified into something far more majestic. The visitor to the Bank would be guided through a maze of spacious corridors, under the vaulted ceilings, to the almost-hidden entrance to the governor's drawing room. On their journey, they would pass portraits of past governors and deputy governors. The escorts, pink-frock-coated "waiters", nearly all veterans of the armed forces, marched at a formidable pace. In the presence of the governor, all it required was a lift of the eyebrow for the attendant banker to recognise the game was up.

Today, the Bank's corridors are as magnificent as ever, the marbles, mosaic floors, Persian rugs and Chippendale furnishings unchanged, and the mystique remains intact, but its new core is that of rigorous analysis. The bankers and brokers, who were on easy terms with the governor, are no longer the insiders. King, who took an academic route to the top of the Bank, is a trenchant critic in public and private of the bankers, of their risk-taking, profiteering and greed. And it is King's cerebral approach and tendency to subject all he does to rigorous intellectual stress-testing that has opened a chasm between himself and Gordon Brown.

Downing Street was especially enraged when, on the eve of the G20 summit in London in April, King warned against "significant fiscal expansion". In so doing, he thwarted the Prime Minister's hopes of forging an agreement with President Obama and other global leaders on a second round of anti-recessionary stimulus packages. King's views accorded with those of the Treasury, which was putting the final touches to a Budget that projected unprecedented levels of new borrowing--[pounds sterling]703bn by 2013-14, or an astonishing76. …