Sept. 5 (Bloomberg) -- Bank of England Governor Mervyn King has too much individual power and a board of directors should be put in place to improve governance of the central bank, former Chancellor of the Exchequer Alistair Darling said.
Darling said his efforts to tackle the financial crisis in late 2007 had been hampered by disagreements with King, who he considered not reappointing for a second term. The former chancellor was speaking yesterday on BBC 1 television’s “Andrew Marr Show” before the publication this week of his book, “Back from the Brink.”
“The present government wants to make the Bank of England not just responsible for interest rates, but also for the supervision of banks, where its track record is mixed, and also it’s got this overall responsibility for trying to iron out the peaks and troughs of the economic cycle,” Darling said. “That is an awful lot of things to invest in one person.”
Prime Minister David Cameron’s government, which ousted Darling’s Labour Party from power last year, is scrapping the current system of bank regulation. The plan will create a Financial Policy Committee within the central bank chaired by King, entrenching his responsibility for financial stability as well as monetary policy.
“The governance of the Bank of England needs to change,” Darling said told the BBC. The governor “has to be the first among equals; you need to have a board of directors, not an advisory committee” such as the current court, he said.
Darling said that as the financial crisis developed, the Bank of England “didn’t have an adequate or anywhere near adequate understanding of what was going on in the banking system.” He said he and King “disagreed with each other as to what ought to be done.”
“I thought it was essential to get money into the system to stop the system from freezing,” Darling said. “He was more concerned about the solvency of banks.”
Asked about the possibility that King would not have been given a second term, Darling said that “it was difficult, but you have to think long and hard about not reappointing a governor.” Central bank heads “need to be terribly careful before they openly cross the sitting government of the day,” he said.
Extracts from the former chancellor’s memoirs published in the Sunday Times newspaper indicate he sought legal advice on whether he could force the Bank of England to take action during the financial crisis.
Darling was told that it “might be legally possible, but that there would be wider implications,” including a “disastrous” public row with King, the newspaper said.
In his BBC appearance, Darling also spoke of his worsening relationship with Prime Minister Gordon Brown, as the two failed to reach a common policy on tackling a budget deficit that ballooned because of the government’s bailout of British banks and the recession.
“We had a fundamental disagreement in 2008 as to how bad this was going to be, and then during 2009 we had this whole argument about what you do about the deficit,” Darling said. “Everything I saw in 2008 pointed to us heading for an absolute meltdown. He took the view that I was exaggerating it, that I’d been misled.”
‘Not at the Races’
Without a credible economic policy, “you are simply not at the races, and our problem was it was so blindingly obvious to the outside world that the two of us -- Gordon and myself --were at odds that it really hampered us” in the run-up to the 2010 election, Darling said. “For any government to operate effectively, there has to be complete unity at the top.”
In the extracts published in the Sunday Times, Darling said Brown “seemed to have no conception of the effects of his sometimes appalling behavior on those close to him.”
“Blind loyalty meant that Gordon was only told that which he wanted -- or could bear -- to hear,” Darling wrote. “Speaking truth to power never came into it.”
Asked if senior Labour politicians should have done more about Brown’s style leadership, Darling said: “Perhaps we should have done something.” The former chancellor said, though, that he was held back by “a residual loyalty, which I found very difficult to overcome.”
--Editors: Fergal O’Brien, Mike Harrison
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