Former Bank of England governor Mervyn King warns the world is on the brink of another financial crash because regulators did not properly handle the last crisis.
The Telegraph reports that King says since the last crash bankers and regulators have “colluded in a self-defeating spiral of complexity” despite governments and regulators being very active.
The former governor makes the claims in his new book.
King argues the financial crisis was not caused by the oversight of individuals, but of an entire financial system and the ideas behind it.
He says: “There was a general misunderstanding of how the world economy worked.”
He says large trade deficits and surpluses around the world created an imbalance between economies, which in turn masked real interest and exchange rates and led to risky investments in property.
But King believes another crisis is inevitable unless major economies rethink their banking systems.
The former governor says banking measures taken to keep market confidence after the crisis have only kept the former imbalance in the system.
He says: “Without reform of the financial system, another crisis is certain, and the failure…to tackle the disequilibrium in the world economy makes it likely that it will come sooner rather than later.”
King says Gordon Brown’s tripartite financial regulation system, made up of the Bank of England, the Treasury and the FSA, failed to prevent damage to Britain’s financial system in the credit crunch of 2007.
King was governor of the Bank of England between 2003 and 2013.