The Governor of the Bank of England Governor breaks with the deadly consensus

I am delighted to see that Mervyn King, the Governor of the Bank of England, has broken with the orthodoxy that encourages a boom-bust economy and passes on the cost of bank failures to the ordinary taxpayer while providing the bulk of profits from bank successes to bank shareholders, directors and employees. Mr King put it this way: “Never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.”

In calling for banks to be split into separate utility companies and risky ventures, he called in effect for the return of the provisions, in the USA, of the Glass-Steagall Act - but at a global level.

By saying it is a delusion to think tougher regulation will prevent future financial crises, Mr King is arguing that what is needed is not more regulation but a structural solution which prevents them becoming “too large to fail” in the first place.

Most of the orthodoxy continues to focus on what are merely useful measures such as ensuring that banks have more capital, forcing banks to hold debt that automatically turns into equity in a crisis, ensuring that banks arrange in advance for their orderly death with so-called “living wills”, and limiting the incentives given to bankers for taking system-threatening risks. Such measures will be useful, but are not adequate for preventing future crises, as I have repeatedlz argued in this blog. Sphere: Related Content