BoE admits to underestimating financial crisis

The severity of the current financial crisis was underestimated, according to the deputy governor of the Bank of England.

Talking to the BBC’s Panorama programme, Sir John Gieve said the Bank was aware that borrowing was at “crazy” levels and that the cost of houses and other assets were rising unsustainably.

However, Sir John said the Bank it failed to understand the severity of the problem and what the implications would be for the rest of the economy.

The Panorama programme: The Year Britain’s Bubble Burst, is to be shown tonight on BBC1 at 8.30pm.

The deputy governor also said that interest rates are a “a blunt instrument”, because they affected the whole economy and the Bank is too reliant on them controlling the economy.

New instruments need to be developed, which sit somewhere between interest rates, which affect the whole economy, and individual supervision and regulation of individual banks, he continued.

Sir John is also doubtful as to whether the Treasury would receive all the money back that it has injected into the banking sector.

He mentions the books of Northern Rock and Bradford & Bingley, which are now in the hands of the taxpayer. However, he does believe that the more mainstream banks do have a commercial future.

Sir John Gieve is a member of the Bank’s rate-setting Monetary Policy Committee.

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