Can Mark Carney prevent another financial meltdown?

Maybe, but not if we get back to where we were in 2008.

by Emma Haslett
Last Updated: 28 May 2014

Mark Carney’s new ‘core initiatives’ for the Bank of England may sound as though they came straight out of a local council thought-shower, but could they have prevented the 2008 crisis? In a speech snappily titled ‘One Mission. One Bank. Promoting the good of the people of the United Kingdom’, the BoE governor set out 15 initiatives to ‘reshape the institution’.

It’s tradition that the Bank of England governor delivers one of Cass Business School’s annual Mais lectures: Mervyn King did it in 2005, Edward George did it in 1998 and Robin Leigh-Pemberton did it in 1987.

Beyond the business school jargon, some of what Carney said was actually pretty sensible: by removing ‘silos’ and making separate factions of the bank work together more closely, he argued that the Bank will be better positioned to spot incoming storms. Or, as Carney put it, ‘the broad range of responsibilities we have been given creates the potential to exploit the complementarities and synergies between them’. He’s obviously using a different dictionary to MT’s…

Other changes include hiring in outsiders - ex-Goldman Sachser Ben Broadbent and Nemat ‘Minouche’ Shafik will start their jobs as deputy governors in July and August respectively. Shafik has the unenviable task of kicking off the Bank of England’s answer to the US Federal Reserve’s tapering.

‘It doesn’t take a genius’ to see risks exist today that are similar to the various bubbles that inflated before the 2008 crisis, he added.

‘That tension between monetary and financial stability is best managed in a co-ordinated way in a single institution.’

Can bringing in a few outsiders and improving communications between ‘silos’ really prevent another crisis? There’s an argument that with a property bubble and a long period of unusually low interest rates (not to mention ever-inflating bank bonuses), we haven’t learned much from the financial crisis. But Carney insisted the Bank had the ‘tools’ to manage it.

‘The Financial Policy Committee has identified a graduated range of macroprudential tools available to it for a coherent, proportionate response to these risks, and has taken initial, prudent steps,’ he said.

The trouble is that the Bank had similar tools back in 2008, but the global banking industry - along with policymakers and commentators - had their heads in the sand to such an extent that it didn’t spot anything coming. It’s that attitude Carney is trying to prevent, but it’s unlikely these measures would have done much to prevent the crisis last time around, such was the collective ego-stroking going on.

Still: all this unity puts MT in mind of a certain early noughties hit. All together now: ‘One Bank, for the mother’s pride / One Bank, for the times we’ve cried...’

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