10:23pm UK, Wednesday May 02, 2012
Ed Conway, economics editor
It is the hardest word. And until Wednesday evening, it is a word Sir Mervyn King had resisted saying.
But in his BBC Today Programme Lecture, the Bank of England (BoE) governor has finally said sorry for not doing more to prevent the financial crisis.
Well, to be absolutely accurate, Sir Mervyn's comments represent more of a half-apology, but given the bank has been under fire for years for refusing to accept responsibility for the crisis, it is certainly more than we had got thus far.
He said: "So why, you might ask, did the Bank of England not do more to prevent the disaster? We should have.
"But the power to regulate banks had been taken away from us in 1997. Our power was limited to that of publishing reports and preaching sermons.
"And we did preach sermons about the risks. But we didn't imagine the scale of the disaster that would occur when the risks crystallised.
With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called 'light-touch' regulation hadn't prevented any of this.
Sir Mervyn King
"With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called 'light-touch' regulation hadn't prevented any of this.
"And in the crisis, we tried, but should have tried harder, to persuade everyone of the need to recapitalise the banks sooner and by more.
"We should have preached that the lessons of history were being forgotten - because banking crises have happened before."
So there we have it: if you ignore the plentiful provisos about not having direct powers to regulate finance, the governor is admitting the BoE failed in its duty to regulate it indirectly by using its influence.
But while this might be the furthest he has yet gone in admitting his mistakes, it is nonetheless likely to fall some way short of the mea culpa his critics would like.
As far as many in the City are concerned, Sir Mervyn made the crisis worse than it would otherwise have been, by initially denying troubled banks the emergency funding they desperately needed in the early months of the crisis.
It took him some months to wise up to the severity of the situation, and even amidst the collapse of Northern Rock he was still lecturing banks on the dangers of "moral hazard" - the danger of sending the wrong signals by bailing banks out.
There are others who blame the Bank's governor for spending too much through his controversial quantitative easing scheme, others still who think he should be spending even more, and on buying other assets.
But there were no apologies or admissions of guilt on this front.
In fact, the only real pointer to the big piece of economic news we have ad in the past week - the fact that Britain is officially back in recession - was a comment that "the recovery is proving slower than we had hoped".
It is a signal that the BoE will probably downgrade its economic forecasts, which it unveils in two weeks' time, but is hardly a wholehearted revision.
And, in a sense, this was not a speech designed to plot a course for the next few years (except insofar as it described the shape of future bank regulation); it was designed to explain why the Bank did what it did during the crisis.
As such, it is perhaps worth dwelling, finally, on Sir Mervyn's comments about the banks he will officially be regulating as of next year.
If you were looking for a more concise critique of the international banking system, you could hardly do better than this passage in his speech.
"Large banks in particular benefited from an implicit taxpayer guarantee, enabling them to borrow cheaply to finance their lending," he said.
"In good times, banks took the benefits for their employees and shareholders, while in bad times the taxpayer bore the costs. For the banks, it was a case of heads I win, tails you - the taxpayer - lose."
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