It was a tongue-in-cheek observation but one symptomatic of Davis’ self-confidence and the moral authority of the chancellor.
I don’t think Davis’ replacement John Tiner or his successor Hector Sants have ever joked in the same way about their relationship with current chancellor Alistair Darling.
I wonder if this is a result of humour deficiency syndrome on their part, an inferiority complex following the fall of Northern Rock or an underlying problem with Darling.
I suspect it’s down to a cocktail of all three because the other component of the tripartite authority seems to have become top dog. Of course, I’m referring to Bank of England governor Mervyn King.
Witness his recent performance at a Treasury Select Committee hearing. The chancellor desperately wanted an extension of the Special Liquidity Scheme but King wouldn’t be moved.
He insisted that the scheme, introduced in April, would close on October 21. But as a result of Lloyds TSB’s merger with HBOS, the BoE has since announced it will be extended until January. At the hearing, King also proposed to introduce a liquidity insurance scheme. King told the committee: “We intend to consult on reforms to our Red Book, including, as I announced in June, plans for a permanent liquidity insurance facility and a consultation paper.
“At the same time, we will also set out arr-angements to ensure the banking system will continue to be able to access liquidity insurance from the BoE from October 22.”
He adds: “The objective of the new facility will be to provide short-term liquidity insurance to smooth the adjustment of financial institutions hit by unexpected shocks.” This won’t solve the mortgage funding problem but King doesn’t seem to see this as his problem. He was scathing about the idea that the BoE should follow the US Treasury’s example of buying mortgage securities from lenders. He seems to see the credit crunch as a symptom of a deeper malaise in the banking system, namely that it is undercapitalised.
For those hoping for some sort of securitisation fix, King offered no joy. In his view, raising funds in this way is relatively new and lenders should simply return to doing so via retail deposits. When Labour came to power, Brown said he wanted to give more independence to the BoE and as the credit crunch began, Darling said he wanted to see a return to good old-fashioned banking. It seems King is delivering on both counts but not in the way that the politicians imagined.