King Mervyn Fights His Corner

As the finger pointing begins it is the two most important central bankers in the firing line with Mervyn King and Ben Bernanke being grilled as to their performance in the recent market turmoil.

In the red, white and blue corner is Professor Mervyn King. He has has been criticised because it is perceived that he fluffed the whole Northern Rock issue by firstly refusing to inject large amounts of cash into the money markets to help banks suffering from liquidity problems and then doing a quick u-turn. Injecting £10bn into the market and agreeing to accept a wider range of collateral from banks moved to calm the system.

This criticism had Professor King off balance for a few rounds at the Treasury Select Committee meeting but like Ali in 'The Rumble in The Jungle' he was just soaking up the punches. He came out fighting by saying he would have liked to have intervened earlier but was tied by EU and UK legislation "If any of these pieces of legislation weren't there" he "would have been able to move sooner".

Bam! The brilliant 'I would love to help you out but your rules won't let me' defence.

After this it all went a little odd for a while, I thought I was watching some Iraq issue when King talked about the fact that he wanted to bail Northern Rock out in a 'covert operation'. Did this involve black balaclava clad SAS guys swooping into the Northern Rock buildings and 'covertly' leaving bags of cash in the vaults, I wonder? Surely the BOE was not talking about keeping the fact that Northern Rock was in trouble away from the general public and it's depositors... no, must have heard wrong..

'King Mervyn' gets an earful from Robert Peston in his article 'Unstable Governor' but I am not sure all the barracking is justified.

I am not one to bash the FSA, primarily because I am a regulatory coward and regulator's powers to take away my livelihood scares me, but it seems to me that a Bank in trouble should have been spotted by the monitoring department. The FSA spends enough time poking into brokerages and making everybody fill out copious amounts of forms for capital adequacy and liquidity etc so my questions is; Who dropped the ball when looking at banks? You didn't have to be Miss Marple to spot the clues after all..

Blaming the Bank of England would seem to me like blaming your corner man for losing a boxing match, yes he is there with you and backs you up when things go wrong, but he is not the one in there fighting. Maybe the FSA did warn the BOE, if so I will happily retract. We shall find out when the FSA takes the stand. I must admit, I am looking forward to that more than OJ's trail II.

There will be all sorts of stories coming out over the next few weeks as politicians, regulators and bankers all play musical chairs but there is one thing for sure, when the music stops someone is going to have nowhere to sit. My money is on the Deputy of The BOE, close enough to seem meaningful, far enough away to let King Mervyn fight another day.