Mervyn King: Banking and the Bank of England Speech by Mr Mervyn King, Governor of the Bank of England, to the British Bankers Association, London, Tuesday 10 June 2008. *  *  *  After a decade or more of economic stability, we are now facing a period of rising inflation and falling economic growth. Part of the reason for this change of economic weather is that we are passing through the most prolonged period of financial turmoil that most of us can remember. Whether, as the IMF has argued, it is the worst period of financial stress since the 1930s is too early to judge. After all, the crisis is not yet over. Since last August there has been a great deal of soul-searching about what we all might have done differently, both before and after 9 August when the crisis hit. And in circumstances where livelihoods are at risk it was inevitable that the “blame game” was played. Unfortunately, although such a game helped to fill newspaper columns, it generated more heat than light. So today I want to step back. Financial crises have been a regular, and disturbing, feature of our and other developed economies for as long any one can remember. They are as frequent now as in the nineteenth century, when Henry Thornton and Walter Bagehot were developing their ideas about how central banks could prevent instability in the banking system.
2014 is very different from the time of the Asian Financial Crisis in 1997 when Emerging Asia only accounted for 18% of global trade and 17% the World’s GDP. Today, Emerging Asia makes up of 25% of global trade and 28% of the world’s GDP. Moreover, the world has become so much more interconnected through the trade, FDI and financial market channels. It is all too easy to give too much credence to the “decoupling” theory than it deserves, as many people did when they over-rated the prospects of the EMEs when the advanced economies were having very difficult times after the eruption of the Global Financial Crisis. So the advanced economies also need to understand and watch out for the developments of the EMEs and their spillover effects. 5. Finally, I wish the Conference every success and all the participants a very pleasant stay in Hong Kong. Thank you. 2  BIS central bankers’ speeches