Andrew Haldane, Executive Director for Financial Stability at the Bank of England, gave an interesting speech at Queen's University today. The speech can be accessed here and the press release is here.
In his speech, Haldane attempted to draw lessons from the Bank's history of reacting to crises and how the Bank can do a better job of fostering financial stability in the future. However, one has to seriously has to consider whether or not the Bank is part of the problem rather than the solution.
Did banks and those who gave money to them take too much risk prior to 2007 because they knew that the Bank and the government were going to bail them out? Apparently, there will be more banks allowed to fail in the future, but this promise suffers from a time inconsistency problem i.e., when it comes to the crunch, banks will be bailed out.
The Bank of England is partially culpable for the collapse of the UK banking system as they had and have a responsibility for the stability of the monetary and banking system. At best, they did nothing to prevent the worst banking crisis the UK has ever experienced. So should their powers be extended?