Sir Mervyn King’s advocacy of splitting up Royal Bank of Scotland is interesting not so much for the idea but for the fact that he said so publicly. He is ensuring he goes out of the Bank of England with a bang.
Governors once raised an eyebrow if they wanted to convey their thoughts. Maybe King is shouting because he thinks his facial movements have been ignored. But as he clears his desk before retiring in June he is becoming more and more off-message and outspoken.
The governor has advocated even greater doses of quantitative easing, for instance, even though he was outvoted by his fellow members of the monetary policy committee – who will have to work with new governor Mark Carney after King has gone. Now he has disagreed publicly with chancellor George Osborne about splitting RBS into a good bank and bad bank and admitted that the bad bit is a lost cause that will leave taxpayers with a large loss.
He reckons the RBS part-nationalisation is a nonsense that has gone on for too long. Actually, it is still less than five years since the rescue and even a small operation like Rolls-Royce took 16 years from nationalisation to privatisation. But yes, Northern Rock was taken into state ownership, divided into good and bad with the good bank spat out quickly while the bad bank is forgotten about.
There are arguments for doing the same with RBS, but the surprise is that King has argued in public when Osborne had already vetoed the idea.
One way of reading the spat is that it re-asserts the independence of the Bank of England after increasing doubts. King and Osborne were previously accused of being too close.
But another reading is that King is sick of doing Osborne’s job for him. The governor has cut interest rates to almost nothing, spent £375bn on a QE programme and created a £70bn Funding for Lending scheme that is rejuvenating the housing market. And the Bank is still responsible for controlling inflation. The chancellor, meanwhile, refuses to devise a growth strategy, merely keeping his fingers crossed that something will turn up – or that King will do his work for him.
Perhaps it riles King that he has to quit while Osborne stays in office. Don’t be surprised if an increasingly ratty governor fires off a few more bangs before he goes.