Summary
THE Governor of the Bank of England, Mervyn King, gave a robust defence of his handling of the Northern Rock affair to the Treasury Select Committee of back-bench MPs. That much was to be expected. However, his assertion that "there was no lasting damage to the British banking system" from the crisis is far from proven.
Mr King told the committee that it would have been "irresponsible" for him to intervene in the money markets during August, when problems were first identified in the US sub prime mortgage market, as it would have "undermined confidence" in the banking system. However, both the US Federal Reserve and the European Central Bank took a different view and poured fresh liquidity into their banking systems. As a result, America and Europe have been spared the run seen on Northern Rock.See the full content of this document
Extract
Leader: Test That the Governor Flunked
As ever, the test of a policy is how the markets react, and they reacted adversely when they thought the Bank of England was failing to intervene. It is a test Mr King flunked. The very fact that he had to change h...
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