The governor of the Bank of England yesterday set his stance firmly against taking action to bail out banks struggling with mounting strains on lending conditions triggered by the worldwide credit crunch. The Times. The Daily Telegraph. Financial Times
Defending the Bank’s handling of the credit crunch, Mervyn King insisted that the crisis had its roots in a careless mispricing of risks by institutions.
He argued that to ride to banks’ rescue now would encourage them to repeat this behaviour, prolong markets’ reassessments of risks and add to the danger of even bigger crises in future.
‘If risk continues to be underpriced, the next period of turmoil will be on an even bigger scale,’ King told MPs in a submission to the Commons Treasury Committee.