As Brown sets off for Brussels with an enormous agenda ahead of him he has promised to fight Britain’s corner but he knows full well that unless he can persuade others that dragooning Britain into the EU’s sclerotic regulatory system would ruin us all, he will be outvoted and London’s leading position in world finance will have been smashed.
Back home speeches from Darling and King to The City in the Mansion House have caused a furore as they appeared to b e advocating two very different policies!
Christina
btw - How many readers, I wonder, know that the headquarters of the world’s 6 largest banks are all in London ! (Newsnight last night!)
TELEGRAPH 18.6.09
1. Mervyn King tells Chancellor that, from his counting house, the figures don't add up
Two years ago at the Mansion House Mervyn King gave a sagacious speech.
By Damian Reece
He told the assembled bankers and merchants to be cautious about how much they were lending, particularly when they knew little about the borrower. "It may say champagne - AAA - on the label of an increasing number of structured credit instruments. But by the time investors get to what's left in the bottle, it could taste rather flat," the Governor of the Bank of England said. Few were listening, although his words probably came too late anyway.
At the same event last night, King was at it again. This time the City, and Alistair Darling (not to mention George Osborne) should listen carefully to King while there's still time to change. The most stark warning came over the Government's handling of the public finances.
King rightly pointed out we need clear plans from politicians about how deficits will be cut in the next Parliament. If not? He didn't bother to spell out the consequences, he didn't need to.
It also looks like banks may require yet more capital – passing stress tests to ensure they won't collapse under immense financial pressures is not the same as a test of their ability to actually finance recovery. Large companies can access equity and bond markets for finance but small and medium sized companies need bank loans. Those loans will remain rationed unless supported by fresh capital. Indeed King left us under no illusion last night that the emergency support provided by the Bank so far, in additional liquidity, will come to an end.
So lenders still face plenty of challenges. He also made a plea to politicians not to rush regulatory reform. Already the Bank has been given weighty new responsibilities for stability but only limited powers to carry them out. In what Labour has already allowed to become a vulgar land grab for power between the Bank, Treasury and Financial Services Authority, King has felt it necessary to start staking his claim in public.
2. Bank Governor Mervyn King tells Alistair Darling to get public finances under control
Mervyn King has delivered his fiercest rebuke to the Chancellor yet, urging him to bring the public finances back in order to avoid further economic disaster.
By Edmund Conway
In a speech delivered in Alistair Darling's presence at the annual Mansion House banquet last night, the Bank of England Governor declared that "fiscal policy... will have to change". It comes only weeks after Standard & Poor's said the UK could face a rating downgrade unless it brings its accounts under control.
The Governor also indicated that banks would either have to be split up into high street and investment banks or restrained in other ways in the future, as well as signalling that they must raise more capital if they are going to support the economic recovery.
Although Mr Darling has spoken of the need for new banking regulations, Mr King warned that the Bank had not yet been given the controls it needed to prevent future crises.
However, with politicians arguing over the size of the deficit, Mr King's comments on the public finances will resound most loudly.
He pointed out that in five years' time the national debt will be more than double its current level of around 40pc of GDP, saying: "It is also necessary to produce a clear plan to show how prospective deficits will be reduced during the next Parliament, so returning to a gradually declining path for the ratio of national debt to national income."
It is highly unusual for the Bank's Governor to chastise the Government explicitly on its fiscal policy, but Mr King has repeatedly warned in recent months that there is little room left for the Treasury to borrow more to fight the recession. The Government is set to borrow a record £175bn this year alone – the biggest amount in post-war history.
Mr King also said that banks should not be allowed to become "too big to fail", saying: "It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure. Something must give."
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