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24 May 2013 00:00
Sir Mervyn King says the failings of the financial and regulatory system were the cause of the turmoil that struck the world economy almost six years ago. (AFP)
This has prompted debate on how much responsibility he should take for the financial crisis.
Sir Mervyn King said on May 19 that the failings of the financial and regulatory system were the root cause of the turmoil that struck the world economy almost six years ago.
King, who will leave the bank this year, told Sky News's Murnaghan programme that there was widespread risk-taking in the run-up to the credit crunch, and it had been a mistake to give the banking sector such a lofty status in the good times.
"Where the banks contributed to the problem was that they themselves had taken too many risks on their balance sheet and they simply didn't have enough capital to absorb the losses that were likely to come along and people took fright, they lost confidence in the banks, they didn't provide money to the banks so the banks couldn't lend to businesses or households," he said.
"I would say to people though, don't demonise individuals here. This wasn't a problem of individuals, this was a problem of failure of a system.
We collectively allowed the banking system to become too big, we gave them far too much status and standing in society, and we didn't regulate it adequately by ensuring it had enough capital."
Asked whether he regretted not doing more to prevent the crisis, King said he and the bank had issued numerous warnings.
Conservative MP Brooks Newmark said King could not escape some responsibility for the errors that helped to cause the biggest financial crisis in generations.
Myners agreed that King had failed to see the problems building up in the run-up to 2007, and had become "hung up on moral hazard" once the banking sector was being bailed out.
"The judgment of history, which with governors is written about 100 years later, will say that he failed in [those] two very major respects and also a third one, that he failed to modernise the bank," Myners added.
King also expressed concern over the government's home ownership programme, the Help to Buy scheme, which involves the government guaranteeing up to 15% of a mortgage on properties worth up to £600 000. The scheme, which begins in January next year, is due to run for three years. King said there was "no place" for a permanent scheme of this kind.
"We do not want what the United States have, which is a government-guaranteed mortgage market, and they are desperately trying to find a way out of that position," he said. — © Guardian News & Media 2013
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