Throughout the current turmoil over the last year in World Banking, there has been a constant reference towards the phenomenon of Banks being Afraid to Lend to Each Other.
What I fail to understand, and forgive me if I happen to have too much common sense, is:
Why weren't Central Banks borrowing money from the Banks who had surplus cash, and were hoarding it, so that they could re-lend it to the banks that lost access to direct wholesale funding?
That way, a Central Bank should have provided as much liquidity as existed before the Credit Crunch, but by acting as an intermediary between banks whom have cash, and banks whom wish to borrow it, they serve as guarantors as well as National risk managers.
As a national risk manager, the Bank of England could then have demanded tighter operation from the commercial banks, such as Northern Rock and Bradford and Bingley, which would have provided the most stabilizing method of downsizing the Banking and Mortgaging industry.
Or is this Mervyn King hiding behind his piggy glasses, saying that his only job is to sit at a meeting once a month and get an interest rate decision that stopped mattering over a year ago?
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