Bank of England Governor Versus Gordon Brown
A fundamental dispute over financial policy and regulation in the UK has burst into the open. The Governor of the Bank of England (the UK’s central bank), Mervyn King, delivered a speech that, in effect, called for a British version of the Glass-Steagall Act of 1933, which separated commercial banking from more speculative investment banking in the United States. The Glass-Steagall Act was a product of the Great Depression, which witnessed the mass closure of U.S. banks. By creating a firm Chinese Wall of separation between commercial and investment banking, America was spared a repetition of the financial disaster that followed the stock market crash of 1929, that is until the Clinton administration decided to “modernize” the U.S. financial system by repealing Glass-Steagall. This dose of legislative idiocy was a major cause of the financial meltdown of 2008.
Mervyn King has stated on the public record his belief that commercial and investment banking must be separated in the United Kingdom, or the nation risks a repetition of the recent disasters which have led the British taxpayers to spends hundreds of billions of pounds to prop up their insolvent banks. He feels the Brown government has not gone nearly far enough on banking reform. In his recent public discourse, King said, “To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.”
Gordon Brown, it would seem, thinks King is going way too far. The embattled British Prime Minister was most accommodating in bailing out overleveraged UK banks, but is not so keen to impose the degree of regulatory supervision and restrictions that the Bank of England governor feels is necessary to avoid a future financial disaster. Using his chancellor of the exchequer, Alistair Darling, as his mouthpiece, Brown rebuked the Bank of England chief for his public expression of concern on banking reform.
In addition to his concern on financial regulation, King has also voiced repeated distress on the growing size of the UK’s structural deficit and national debt. Other economists have warned that the United Kingdom is losing control over its fiscal destiny. In my opinion, without radical changes in the very near future, the next PM of the UK (almost certainly Brown will not be re-elected in next year’s general election) will inherit an insolvent nation.
