In 1973 the Governor of the Bank of England Sir Gordon Richardson called in the heads of the five main UK banks and told them there was a problem. Thirty or more of the recently emerged secondary banks were unable to renew their deposits. There was, as it became known, a Secondary Banking Crisis. His solution was that each should contribute £200 million to a ‘Lifeboat Fund’. There was no question that his request would be challenged such was the power of the governor. That was how the City was regulated in those days. The banking system survived and subsequently prospered.
As the outgoing Governor Sir Mervyn King ponders his tenure at the Bank he certainly will struggle to recognise any similar achievements. This week he will chair his last meeting of the Monetary Policy Committee (“MPC”) before he retires at the end of this month. The MPC has failed miserably to achieve its main task which is to control inflation. For the last thirty one months the Consumer Price Index (“CPI”) has been above its target growth rate of 2%.
More importantly the Bank has failed to ensure financial stability and the discovery that the Co-operative Bank has a £1 billion deficit in its balance sheet must be a bitter leaving present.
It is far too early to assess the impact of Quantitative Easing (”QE”). The new boss Mark Carney has £375 billion of Government bonds to sell off: he may have secret thoughts about his predecessor. He will also have to participate in the confused and over-layered new system of regulation: there could be problems with The Treasury ahead.
As far as Enterprise Britain is concerned the lack of bank support for SMEs has contributed to the lack of growth in the economy. Like so many similar schemes, funding for lending has had no impact.
Sir Mervyn has revealed that he keeps most of his mornings free so that he can “sit, read, think and reflect.” I had a friend who ran an estate agency. He went on a mind management course and adopted exactly the same routine. His business went into receivership twelve months later.
For many of us banking remains a people’s business. My lending pneumonic at the bank I began my career in was PARSER – person, amount, repayment, security, expediency and rate of return.
That has been the real issue with Sir Mervyn. Notwithstanding this has been a difficult ten years he has always been the distant academic and not a man of the people.
Over to you Mark, Buddy…