BoE at odds with Chancellor

Last night's Mansion House event showed up, yet again, the cracks in the relationship between the Bank of England and the government. In his speech, BoE governor Mervyn King called for more powers to allow the Bank to succeed in its new role of promoting financial stability. However his comments came in contrast to Chancellor Alistair Darling's earlier speech, in which he mentioned no such plans.

King said that "Warnings are unlikely to be effective when people are being asked to change behaviour which seems to them to be highly profitable. So it's not entirely clear how the Bank will be able to discharge its new statutory responsibility if we can do no more than issue sermons or organise burials."

Alistair Darling, however, concentrated on laying blame for the problems in the financial sector on the banking chiefs. However he did not come up with any new regulatory ideas or structural changes, preferring instead to look to a long-term ‘change of culture'.

King also pointed to the deterioration in public finances and declared that fiscal policy would have to change to reflect this worsening. This will be seen widely as a rare public rebuke to the government, but many will agree with his assessment of the Treasury's excessive borrowing, which is set to reach a record £175bn this year.

WHAT THEY ARE SAYING:

Robert Peston on BBC.co.uk: "[Mervyn King] is bound to be seen as attacking the man sitting next to him at the annual Mansion House dinner in the City of London, the Chancellor of the Exchequer - in that the Treasury has resisted significant changes to the allocation of regulatory responsibilities between the Financial Services Authority, the Treasury and the Bank of England, the so-called Tripartite. However, what he said may well be music to the ears of the shadow Chancellor, George Osborne, who is understood to have been planning to call for more powers to be given to the Bank of England to oversee financial institutions."

Edmund Conway in the Daily Telegraph: "Not so long ago, Mervyn King delivered a pretty clear-sighted explanation of the pickle the UK banking system was in. Banks had been bailed out enough to help them survive, he pointed out, but not enough to allow them to lend cash to companies and individuals and get the economy back on track. In his speech at the Mansion House tonight, he has done a similar operation dissecting the problem with regulating big banks."