Governor: Bank fell short in crisis
MARK Carney last night sought to draw a line under the Bank of England’s handling of the financial crisis – saying his predecessors made a string of mistakes.
In what could be seen as a criticism of how the central bank was run by former Governor Lord King, the Canadian conceded that the light-touch informal regulation of many markets in recent years ‘proved wanting’.
‘Most troubling have been the numerous incidents of misconduct that exploited such informality, undercutting public trust and threatening systemic stability,’ he told City figures at the annual Mansion House dinner.
Carney highlighted three areas where the central bank ‘fell short’ in the runup to the crisis – adding that ‘in all cases the Bank is now responding’.
He said the Bank was unable to provide liquidity to the banking system fast enough as the crisis struck.
‘Once under pressure the Bank could neither stabilise overnight rates nor support the banking system,’ he said.
Carney also said the Bank ‘ neither identified the scale of the risks in the system nor spotted the gaps in the regulatory architecture’ – leaving the economy vulnerable.
And he bemoaned the central bank’s ‘arcane governance’.
Insisting that the main building blocks of reform are in place, Carney said ‘it is vital that we – public authorities and private market participants – work together to reverse the tide of ethical drift’ in the financial system.
The comments came as the Bank announced plans for a tougher regime to drive out rogue traders while the Chancellor revealed the Government will soon sell its 80pc stake in Royal Bank of Scotland.
As part of the clampdown – dubbed the Fair and Effective Markets Review (FEMR) – the Bank wants to increase the maximum jail sentence for market abuse from seven to ten years.
Rogue traders could also face jail. Criminal sanctions for market manipulation currently only apply to traders guilty of rigging Libor interest rates. To prevent errant staff from simply moving firms, employers including banks will have to disclose the details of any wrongdoing in references.
A new market standards board led by the industry will be set up to help spot abuse. The new regime was welcomed in the City. Lord Mayor Alan Yarrow said: ‘By toughening up the rules for manipulating the fixed income, commodities and currency markets we are turning the corner and making further abuse less likely.’
The Chancellor also signalled the Treasury would shortly start the process of offloading Royal Bank of Scotland (up 2.2p to 354.8p).
George Osborne said that the ‘deci- sion point’ had been reached after he was given the green light by Carney and investment bank Rothschild, which has been conducting an independent review into RBS.
Rothschild said taxpayers would incur a £7.2bn loss if the Treasury sold its remaining 80pc stake in RBS at 357p. The ‘break even’ price paid for the shares is 500p.
But Rothschild said that if it sold its remaining stake in Lloyds on the same basis, taxpayers would get £14bn more than the £65.5bn they pumped into the two lenders. Yesterday Lloyds (down 0.25p to 86.73p) announced that the taxpayers’ stake had been reduced by another 1pc to 17.9pc, from 41pc.