Financial Stability News

News about financial stability and central banking

Mervin King wants fair pay

Short speech by Bank of England Governor Mervin King published yesterday. He notes at the end that the legitimacy of the market economy will be challenged if rewards go disproportionally to a small elite. It is important that “distribution of rewards is fair”.

Key message of the speech, apart for the above, is

  • There is scope for interest rates to remain low
  • BoE stand ready to provide more liquidity to healthy banks against good collateral should market conditions deteriorate
  • Appropriate supply-side reforms can, by raising income expectations, reduce the impact of  deleveraging on spending

He also notes that net export has increased since 2007 due to a 25% depreciation of the pound sterling, but that further adjusment will depend on the development in the world economy, which is uncertain.

As for the euro area, he notes also the

“imbalances are a problem not just for the debtor countries but for creditors countries too. For each loan incurred, a loan is extended. So if the position of debtors is unsustainable, so is the position of creditors. In practice, this means that large losses will need to be recognized and absorbed”.

It remains to be seen if the Bundesbank gets his advice.

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