It’s a stinging rebuke from the Wizard of Threadneedle Street, but the outgoing governor of the BoE says that Osborne and Number 10 have been trying to lobby the Prudential Regulation Authority ‘at the behest of the banks’.
Merv made his comments in his last appearance before the Treasury select committee on Tuesday morning, claiming that Downing Street was trying to get rules about how much money banks should hold in reserve watered down. That’s exactly what the banks want, as they claim that having to save up the cash is dampening their lending ability.
King seems to be suggesting that banks can lean on Downing Street to get leniency from the regulator: ‘I don’t think banks should conduct conversations with supervisors through front pages of the FT or any other newspaper. Banks shouldn’t leave conversations with supervisors and feel the next step is to phone Number 10 or Number 11 Downing Street.’ When pressed specifically on the issue of whether politicians responded to those calls by trying to influence the regulator, he said: ‘I think conversations were had.’
If they are true, King’s allegations will do some serious damage to Osborne’s claims that he is capable of being ‘tough’ with the financial sector. He has spent the last three years waxing lyrical about the need to get banks ‘behaving’, and now it would appear that his view is not quite so firm behind closed doors.
Of course, the rumbustious Andrew Tyrie, who chairs the committee, went straight to the House of Commons to ambush Osborne with questions about King’s claims. He said: ‘Will the chancellor reassure the house that he knew nothing about this, that he was not personally involved and that he will investigate the allegation that others did bring unacceptably pressure report to parliament?’
To which, Osborne offered a neatly evasive response. He said: ‘If there’s unacceptable pressure, I absolutely say that is not acceptable,’ before adding something about the right of banks ‘to make their case’. A load of waffle, in other words.
Still, Mervyn King is on his way out, and obviously saw the committee as a good last chance to vent spleen about his frustrations on the job. What his famously high-minded successor, Mark Carney, will make of all the hoo-ha remains to be seen...