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Mervyn King speaks for bank reform

Mervyn King, the Governor of Bank of England, has advocated the need for more stringent rules to secure financial stability. In the wake of the global economic meltdown that hit the world financial sector in 2008, he wants the new coalition government in UK to leave no stone unturned to reform the banking sector.

King believes that interest rates alone are insufficient to balance and root out the danger of excesses accumulating in the financial sector. He’s mentioned in a foreword to the central  bank’s 2010 annual report that we can no longer afford the risk of allowing banks to operate with the belief that they’re ‘too big to fail’ .

He strongly feels that additional policy tools are required to meet this purpose. The financial system at any cost shouldn’t regress to its former ways pretending that no menace of recession has ever occurred. Every opportunity to improve the system must be availed. He’s argued in favor of more rigorous rules and policies to ward off the danger of another recession-like situation and the gradual collapse of the global economic sector like the one in 2008. He has always wanted and still speaks out about the need for forcing retail banks to separate activities like proprietary trading that involves a lot of risk. Incidentally the latter idea is favored by Chancellor Gordon Osborne.

The Conservative-Liberal Democrat coalition has agreed to set up an independent commission for investigating the matter of separate management of retail and investment banking.

King is also a supporter of the bank’s inflation-targeting framework and feels that the difference between the actually consumer price and the target value would be short-lived. He’s written that inflation has remained low and is on the way to fulfil the target in the medium term.

King believes that the aforementioned framework has successfully warded off the menace created by the recession.

Tags: Economy, Finance