Tuesday, October 20, 2009

BofE Mervyn King: "Biggest moral hazard in history"

by Calculated Risk on 10/20/2009 07:16:00 PM

A quote from Bank of England Governor Mervyn King in the Telegraph: Mervyn King: bank bail-outs created 'biggest moral hazard in history' (ht Jonathan)

"It is in our collective interest to reduce the dependence of so many households and businesses on so few institutions that engage in so many risky activities. The case for a serious review of how the banking industry is structured and regulated is strong. ... The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion. ... It is hard to see how the existence of institutions that are 'too important to fail' is consistent with their being in the private sector."
More from The Times: Mervyn King calls for banks to split as public finances take record hit
“What does seem impractical, however, are the current arrangements. Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we now are.

“It is important that banks in receipt of public support are not encouraged to try to earn their way out of that support by resuming the very activities that got them into trouble in the first place.”
...
“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.”