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London - The Bank of England led by Mervyn King was slow to grasp the nature of the financial crisis in 2007, so much so that then-finance minister Alistair Darling wanted to force it to take action, he writes in a book due to be released next week.
Unlike King's counterparts at other central banks, the BoE governor was at first reluctant to respond when markets seized up in August 2007. Some critics blamed the delay for the run on Northern Rock, Britain's first in more than a century, which led to the lender's nationalisation.
"The Bank was slow to recognise the nature of the crisis," Darling writes in his memoir of the financial crisis, according to an excerpt published in the Sunday Times newspaper.
He says he wanted the BoE to pump more money into markets to unfreeze lending between banks but King disagreed, arguing that such an intervention would let the banks off the hook for their failure to hold enough capital and so create "moral hazard".
"I was so desperate that I asked the Treasury to advise me as to whether we could order the Bank to take action," Darling writes. "(But) a public row between myself and Mervyn would have been disastrous."
Underscoring the consequences of the clash, Darling told BBC television on Sunday: "Throughout the autumn of 2007 we did not deal with this (crisis) as effectively as we could because of this disagreement."
Darling added that another problem at the BoE in 2007 was its acute lack of understanding of what was going on in the banking system "despite the fact it had responsibility for the financial stability of the system and had done since 1997".
In the book, called "Back from the Brink: 1 000 Days at Number 11", Darling singles out King's contacts with banks.
"The lack of relationship between Mervyn King and the bankers had become a real problem," he writes. "Things had been different in the days when Sir Eddie George was (BoE) governor. He was a man who knew the markets intimately."
Because of this and King's initial approach to the financial crisis, Darling became unsure whether King should be re-appointed for a second term as BoE governor.
"For me, the test was straightforward. Was there a better candidate? The short answer: no, there wasn't," Darling writes, adding that in hindsight it was the right decision.
According to other excerpts from Darling's book cited in newspapers on Saturday, King himself regretted failing to act swiftly enough to prevent the run on Northern Rock .
