The Bank of England did not understand the seriousness of the asset bubble which preceded the banking crisis and ongoing global recession, its deputy Governor has admitted.
In an interview for BBC's Panorama, deputy governor Sir John Gieve, believes central banks need new tools to deal with future crises, as interest rate setting is not up to the job of dealing with the complexities of modern finance.
Gieve says the Bank of England's Monetary Policy Committee (MPC) - of which he is a member - knew lending had hit 'crazy' levels and the value of houses and other assets were rising beyond what the economy could sustain.
The MPC has relied too heavily on interest rates to control the economy, he says, and new tools need to be developed to prevent a similar financial crisis from happening in the future.
"We need to develop some new instruments, which sit somewhere between interest rates, which affect the whole economy... and individual supervision and regulation of individual banks," Gieve explains.
He recommends developing monetary policy tools which are specific to the financial services industry, so as not to stifle the wider economy once the banking sector gets out of hand.
Contact: John Bakie, Tel: 020 7484 9805, e-mail: [email protected]IFAonline
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Report to be written by TPR
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