Mervyn King urges reform to avert new global financial crisis

A new global financial crisis is certain to occur and, without reform, it is likely to happen sooner rather than later, according to former Bank of England governor Mervyn King.

Mr King, who headed the Bank of England when the world’s financial system almost collapsed in 2008 and 2009, said only a fundamental rethink of the monetary and banking systems could avert another crisis.

“Without reform of the financial system, another crisis is certain, and the failure ... to tackle the disequilibrium in the world economy makes it likely that it will come sooner rather than later,” Mr King said in an extract of his new book published by The Sunday Telegraph newspaper.

He added that global central banks were caught in a “prisoner’s dilemma”, unable to raise interest rates for fear of stifling the economic recovery.

The ECB is not expected to raise interest rates until 2018 or 2019, while the Bank of England has held rates at a record low 0.5% for the last seven years.

Darkening global economic prospects and ructions in financial markets have pushed out investor expectations for the first Bank of England rate hike into 2019 — an outlook some policy makers view as too pessimistic given continued steady growth in the UK economy.

Mr King was succeeded in 2013 by Mark Carney, who last week warned that moves by central banks to cut interest rates below zero risked creating an environment which could leave the global economy trapped in low growth.