He lambasted the Bank’s acting “hesitatingly, reluctantly and with misgiving”.2 Henry Gibbs, Governor of the Bank from 1875 to 1877, highlighted the Overend experience as “the Bank’s only real blunder”.3 Yet the Bank had also learned from this experience. It had discovered that its role could be neither commercial nor competitive. Instead its role was as guardian of the financial system as a whole, protecting banks from what is today called systemic risk. In Bagehot’s words, the Bank should act as last resort lender to solvent institutions against good collateral at a penalty rate. It has done so ever since. The Bank did not have to wait long to put its new-found role into practice. On Saturday 8 November 1890 the Bank Governor of the day, William Lidderdale, summoned his Directors. This itself aroused suspicion. Bank directors were never seen at work at the weekend. They typically departed for the country around Friday lunchtime. (Let me tell you, things have changed for Bank of England Directors since then.) What Lidderdale told his Directors was electric. There were serious liquidity problems at another big and famous bank, Baring Brothers and Company. But the Bank had not the faintest clue as to Barings’ true financial position. To rectify that, Lidderdale ordered an accountant’s report on Barings to be brought to him with immediate effect. And with that, he departed to London Zoo with his son. 1  Kynaston (1994) Vol. 1. p200. 2  Bagehot (1873). 3  Wood (1999).
It came care of fixing the exchange rate – first to gold under the Gold Standard and latterly in the post war period to the dollar. With the demise of the dollar standard in the early 1970s, however, the exchange rate anchor had been tossed overboard. At the Bank of England, as elsewhere, the search was on for a new nominal anchor. Into this vacuum stepped Andrew Duncan Crockett. Crockett joined the Bank in 1966 as a graduate entrant, just before the break-up of the Bretton Woods dollar standard. He set to work on the biggest problem of the day, locating a new nominal anchor. In so doing, he began working alongside another young(ish) new Bank entrant, Charles Goodhart. The result was a joint paper published in the Bank’s Quarterly Bulletin in June 1970. It was titled “The Importance of Money”.11 Re-reading it now, it was a prophetic piece of work. In the UK, it laid some of the analytical foundations for what, during the late 1970s and 1980s, became monetarism. More than that, the paper placed commercial bank money and credit at the centre of the macro-economy. It could as well have been titled “The Importance of Credit” or indeed “The Importance of Banks”. After a successful spell at the IMF, Crockett returned to the Bank of England in 1989. In 1994, he then became General Manager of the Bank for International Settlements, the central banks’ central bank. In central bank circles, change was in the air.