Investment Markets » Banking and Finance
Knives Out At Mansion House
A fall guy has been found for Northern Rock. But who was the real winner of the battle of the banking reforms?
Politics is a dirty business, and seldom more dirty than the scene played out in Mansion House during the recent Lord Mayor's banquet. At some point after the gravalax has been cleared away, the news started filtering through the dining room that Sir John Gieve, deputy governor of the Bank of England, had effectively been ousted.
Thus it was that Sir John, sitting at the top table even as the Chancellor was holding forth a few feet away, was told by text message that the BBC's evening news was leading on his departure. In scenes bordering on farce – and humiliation – he had to vet the wording of an emergency statement under the table while speeches droned on around him.
A more cynical piece of news manipulation is hard to imagine. There had been bad blood between the Government and the Bank ever since Northern Rock, and this was a case of Downing Street getting its own back.
The leak served the triple purpose of rubbing the Bank of England's nose in it, humiliating Sir John in front of the City's great and good, and deflecting attention from the bleak message the Governor had for the British public. And the horse-trading was so transparent as to be almost comical.
Bank Governor Mervyn King gets his way in seeing his chief economist, Charlie Bean, promoted to deputy governor, replacing Rachel Lomax. Meanwhile, Sir John is thrown to the wolves, so as to leave the other deputy governor's job vacant for the Treasury's favoured man, Paul Tucker.
It was a shambolic moment, though Sir John was always the likely scapegoat for Northern Rock. He'd been a marked man ever since the Treasury Select Committee accused him, whether fairly or otherwise, of being asleep in the back shop.
The move came amid a package of measures billed as the most fundamental banking reform for ten years, and there's little doubt who came out on top. The Financial Services Authority had been expected to win more power from the shake-up of the tripartite regulatory authority.
But, in the event, it is Mervyn King who is the new Mr. Big of Britain's financial world. The bank now assumes legal responsibility for financial stability in addition to monetary policy. True, a new committee will oversee the Bank, but it will not have the right to take decisions on big issues such as the liquidity support operations, which caused the most controversy in the run-up to Northern Rock's failure.
After months of tussling and blame shifting, Mervyn King has emerged victorious.
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