A currency war is possible as central banks keep relaxing monetary policy, former Bank of England Governor Mervyn King said. "With interest rates close to zero, in some cases below, with fiscal policy constrained in many countries, the objective of economic policy will be to lower the exchange rate," he said. "There is a real risk that focusing attention on bringing the exchange rate down will become an implicit or explicit currency war."
Mervyn King, governor of the Bank of England, told the Parliamentary Commission on Banking Standards that Royal Bank of Scotland should be split up into a good bank and a bad bank. The restructuring would be part of an effort to return RBS to private ownership. "We're 4½ years on, and there's no sign of it going back to the private sector," King said. "That indicates we've not been sufficiently decisive in recapitalising or restructuring it."
Mervyn King, governor of the Bank of England, said increasing interest rates would exacerbate already-high debt levels. "The economic consequences of high-level indebtedness now would become more severe if rates were to rise," King told a committee of the European Parliament. "It is the main reason why interest rates are so low." Policymakers at Britain's central bank are split on the direction of monetary policy. Economists expect the Bank of England to maintain its key interest rate when policymakers meet Thursday.
Mervyn King, governor of the Bank of England, said the UK government needs to "seize the opportunity" for reforming financial regulation to ensure stability. King said financial institutions should not be allowed to be "too big to fail". He also warned that interest rates are not a cure-all for curbing excesses that build in the financial system. "There is a need for additional policy tools," King said. "The system cannot be allowed to revert to its former ways as if nothing has happened. We must seize this opportunity for reform."
Bank of England Governor Mervyn King, U.S. Treasury Secretary Timothy Geithner, and other financial industry experts and insiders acknowledge that changes are needed to banks' required capital ratios. However, exactly how much money banks would need to hold in their rainy day funds remains a point of debate.