Mervyn King, Baron King of Lothbury
Mervyn Allister King, Baron King of Lothbury, is a British economist and public servant who was Governor of the Bank of England from 2003 to 2013. Emeritus Professor of the London School of Economics and Chairman of the Philharmonia since 2020, Lord King serves as President of Marylebone Cricket Club for 2024/25.
Born in Buckinghamshire, King was educated at Wolverhampton Grammar School, Staffordshire, before going up to read economics at King's College, Cambridge, and Harvard University. Elected a Fellow of St John's College, Cambridge, working as a researcher on the Cambridge Growth Project he then taught at the University of Birmingham, Harvard and MIT, before becoming a Professor of economics at the London School of Economics. He joined the Bank of England in 1990 as a non-executive director, and became the chief economist in 1991. In 1998, he was promoted deputy governor of the Bank and a member of the Group of Thirty.
King was appointed as Governor of the Bank of England in 2003, succeeding Sir Eddie George. Most notably, he oversaw the Bank during the 2008 financial crisis and ensuing Great Recession. King retired from office as Governor in June 2013, being succeeded by Dr Mark Carney. Created a life peer in July 2013, Lord King entered the House of Lords as a crossbencher. From 2014 until 2022 he was professor of economics and law, a joint chair at New York University's Stern School of Business and School of Law.
Early life and career
Mervyn King is a son of Eric King, a railway porter who retrained as a geography teacher after the War, and Kathleen. Born at Chesham Bois in Buckinghamshire, he was educated at Warstones Junior School and Wolverhampton Grammar School in Staffordshire, before going up to read economics at King's College and St John's College, Cambridge, then at Harvard University. Whilst at Cambridge, King was Treasurer of the Cambridge University Liberal Club in 1968.Elected a Fellow of St John's College in 1972, he worked as a researcher on the Cambridge Growth Project with future Nobel Laureate Sir Richard Stone and Terry Barker at the University of Cambridge. From 1977 until 1984, he taught at the University of Birmingham and was a Visiting Professor at Harvard then Massachusetts Institute of Technology where he shared an office with then-Assistant Professor Ben Bernanke. In October 1984 he was appointed Professor of Economics at the London School of Economics where he founded the Financial Markets Group. In 1981, he was one of the 364 university economists who signed a letter to The Times condemning Chancellor Geoffrey Howe's 1981 Budget.
Bank of England
King joined the Bank in March 1991 as chief economist and executive director, after being a non-executive director from 1990 to 1991. He was appointed Deputy Governor in 1997, taking post on 1 June 1998. In the same year, King became a member of the Group of Thirty. An ex-officio member of the Bank's interest-rate setting Monetary Policy Committee since its inception in 1997, King took part in its monthly meetings. Succeeding Sir Eddie George as Governor on 1 July 2003, he became the first incumbent Governor of the Bank of England to receive an audience with Queen Elizabeth II.While Governor, King was responsible for putting Matthew Boulton and James Watt on the £50 note.
2008 financial crisis
After becoming governor, King explained that Bank of England policy was "similar to that of the Federal Reserve" under Alan Greenspan. Greenspan described his approach as "mitigat the fallout when it occurs". King agreed with Alan Greenspan that, "It is hard to identify asset price 'bubbles'."Other warnings about the UK housing market followed, including from the National Institute of Economic and Social Research in 2004 and the OECD in 2005. King noted the "unusually large" difference between the RPIX and CPI at the beginning of 2004, and, six months later, that UK house prices had risen "to levels which are well above what most people would regard as sustainable in the longer term", having increased by more than 20% over the preceding year and more than 100% over the preceding five.
In 2005, The Economist described the run-up in UK house prices as forming part of "the biggest bubble in history", and, by October 2007—when the UK housing bubble was at its peak — the IMF was reporting that the UK housing market was "overpriced by up to 40 per cent". As noted by the OECD, house-price volatility "can raise systemic risks as the banking and mortgage sectors are vulnerable to fluctuations in house prices due to their exposure to the housing market."
Dean Baker in The American Prospect said the failure by Greenspan and King to tackle their respective countries' housing market bubbles resulted in catastrophic "fallout" when the bubbles burst, resulting in both countries' worst recessions since the Great Depression. UK–US inaction may be compared to action taken by China and Australia.
Another result of the financial crisis was King's rejection of the Bank's devout focus on price stability, or inflation targeting, a policy that was instituted after Black Wednesday in 1992 and continued by King after becoming Governor in 2003. One of the two early lessons King drew from crisis were that "price stability does not guarantee stability of the economy as a whole" and that "the instruments used to pursue financial stability are in need of sharpening and refining."
The 2012 Financial Services Bill, in transferring the majority of macroprudential regulatory powers from the FSA to the Bank, granted the Financial Policy Committee the power to curb lending in booms, including placing limits on the public's access to mortgages. A former senior BoE official summed up the Bank's pre-crisis performance: "How can you look back with the benefit of hindsight and see it as a success? We were responsible for financial stability and we utterly failed to take any avoiding action against the greatest financial crisis in our lifetimes". David Blanchflower said that, even as late as the summer of 2008, King did not even see the financial crisis coming.
In its review of Bank of England accountability, one of the major complaints of the Treasury Select Committee was the Bank's refusal to undertake an internal review of its performance during the financial crisis. Such a review would pose difficulties since evidence on how its most senior policymakers arrived at their decisions was destroyed as a matter of course. By contrast, the United States publishes the Federal Reserve's deliberations with a five-year lag, which have provided "the most detailed picture yet of how top officials at the central bank didn't anticipate the storm about to hit the U.S. economy and the global financial system." As in the UK, the US central bank's failure led to a new regulatory framework, the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act.
Response to crisis
King argued that when the financial crisis and bank meltdown hit in autumn 2008, he and other Western central bankers "prevented a Great Depression", in part by cutting interest rates to virtually zero. The Economist agreed, saying that he "has a point". A 2012 review of actions taken by Western central banks in the face of the crisis also supported King's claim. The bank has faced criticism, however, for the pace of the rate cuts, which took five months from the beginning of October 2008 to get down from 5.0% to 0.5%, where they remained for several years.After becoming only the second Bank of England Governor to speak to the TUC in its 142-year history, King conceded that people were "entitled to be angry" about unemployment and the bank bailout.
King has been scathing about the banking sector since it crashed, especially its "breathtaking" £1 trillion bailout and its continuation of bonus awards in 2009, calling for a serious review of banking's structure and regulation.
In a Daily Telegraph interview in March 2011, King said banks had "put profits before people", that failure to reform the sector could result in another financial crisis, and that traditional manufacturing industries have a more "moral" way of operating. In an interview with The Times in March 2012, he said that the banks are still in denial about the "very real and wholly understandable" anger that is felt at their behaviour, Bankers have not been happy with his excoriating views and insistence on avoiding moral hazard, but King insists that "arket discipline can't apply to everyone except banks", pinpointing the banks' sense of grievance on their finding it "very, very difficult to face up to the failure of their banking model".
Before the end of King's governorship in 2013, some top UK banks warned that unless a less "hostile" figure were found as a successor, they could move abroad. On 26 November 2012, Mark Carney was named as King's successor.
Banks bailout
King was accused of refusing funding to the Northern Rock Bank, precipitating a run on that bank, a situation not seen in the UK since 1914. King later said that it had been the Chancellor Alistair Darling, not he, who had the final word on refusing the necessary help to Northern Rock. In his of King's tenure as Governor, Times journalist David Wighton wrote:In his memoirs, Alistair Darling was critical of King for emphasising moral hazard—the doctrine of not saving the banks from the consequences of their own mistakes—instead of rescuing the banks by pumping money into them as the banking-system meltdown occurred in autumn 2008. Despite his refusal to give funding to the retail banks, he retained his job, and submitted in defence to a Treasury Select Committee that his actions were on the basis that the Bank of England was the "lender of last resort" but subsequently supported moves to provide funding to those banks which had been nationalised or partly nationalised.