Busted: Bankers and The Global Economy

January 26, 2008

British Fed Criticized for Lack of Intervention

The British regulatory agency, FSA said it would release the conclusions of an internal review in March regarding the Northern Rock bank run last year. The evidence shows widespread neglect and disregard for established procedure.

“As we have already acknowledged publicly, there were clearly supervisory failings in relation to Northern Rock and we are already addressing these,” it said in a statement.

The lawmakers also criticized Bank of England Governor Mervyn King for failing to act in August when the European Central Bank made extra funds available in an attempt to stop credit markets from freezing up. King had told the committee last year that he had felt it would be wrong to intervene to bail out banks from their riskier investments, but the committee said it was unconvinced. “In our view, the lack of confidence in the money markets was a practical problem and the Bank of England should have adopted a more proactive response,” he said.

The Herald Tribune 1/26/08

British Fed Chairman Mervyn King is correct. It not the job of the Federal Reserve Bank to step in autonomously to inject funds into the national banking system. Obviously, the British banking regulators have been asleep at the wheel and are frustrated at the position they find themselves in. When a bank fails, the government takes appropriate measures and absorbs the loss within the system as the primary solution. ~ E.M.


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