BOE's King Acted Too Slowly, Should be Replaced, Telegraph Says

By Svenja O'Donnell

Oct. 23 (Bloomberg) -- Bank of England Governor Mervyn King should be replaced for reacting too slowly to the banking crisis that's helped push the U.K. into recession, the Daily Telegraph newspaper said in an editorial today.

King has been an ``invisible man'' since the financial crisis started in August last year, said the paper, Britain's best-selling broadsheet. The bank's emergency interest-rate cut this month was ``too little, too late,'' the paper said.

The deterioration of markets over the past month has revived criticism of King's crisis-management skills after he escaped blame for the collapse of Northern Rock Plc last year. Former policy maker Charles Goodhart said last month that King should have been more generous in offering emergency funds to banks and some executives say King's been too focused on punishing risky lending rather than saving the financial system.

King gave a speech this week that analyzed the causes of the financial turmoil that led to Britain's worst banking crisis since World War I. He also acknowledged for the first time that the economy is likely to slip into a recession

``He gave the appearance of a thoughtful onlooker at a particularly nasty accident,'' said the Telegraph. ``The new financial order, with the government holding significant stakes in the banks, calls out for new leadership at the Bank of England.''

Flooding With Cash

A spokesman for the U.K. central bank didn't immediately return a phone call seeking comment. The governor was reappointed for a second five-year term by Prime Minister Gordon Brown in January.

King argued in the initial stages of the crisis that flooding the financial system with cash would bail out banks that took too many risks during the credit boom. He also defended the Bank of England's role in the failure of Northern Rock, saying that its fate was for the government to decide.

HSBC Holdings Plc Chairman Stephen Green or Standard Chartered Plc Chairman Mervyn Davies should be considered by Brown as potential replacements to King, the Telegraph said.

King will give testimony to a committee of lawmakers on Nov. 3 and will be joined by Financial Services Authority Chairman Adair Turner and Chancellor of the Exchequer Alistair Darling.

While Hector Sants, the FSA's chief executive has apologized for the regulator's failures in overseeing the banking system before the crisis broke, some economists say King hasn't been self-critical enough. In his speech on Oct. 21, did not ``really address the question'' of what the central bank could have done differently, said Citigroup Inc.'s Michael Saunders in an e-mailed note to investors yesterday.

``Given the economy's poor prospects now, such an honest assessment is clearly needed,'' said Saunders, chief Western European economist at Citigroup in London.

To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.