An outspoken central banker is an oxymoron. Bank of England governor (BoE) Mervyn King has been unusual. He has not pulled his punches in some recent statements on the global credit squeeze. In a note to the British parliament on Wednesday, King bluntly said he saw no reason why central banks should bail out reckless lenders as a group. Banks have enough capital to take a hit, he said. Indiscriminate help will encourage more recklessness.
So, the BoE has not joined its peers in the US, Europe and Japan in pouring cheap money into the economy. Ironically, this was also what Ben Bernanke used to argue before he took the top job at the Fed.
So it may seem surprising that the BoE threw a lifeline to UK mortgage lender Northern Rock on Friday. But we have not been told at what interest rates the BoE has lent money. It is likely that the rates are punitive. We hope Bernanke follows these tough norms when he decides on rates next week.