Sir Mervyn King

Is it any wonder that the public have lost faith in the world of finance and banking?

No, it's no wonder at all, in many ways, when the crisis hit in two thousand seven eight, I was surprised that people weren't angry sooner. … And I think you can see it coming through now as the impact on standards of living becomes more obvious, and they have every right to be angry. But it is the case that banks are safer now, they've got more capital, they can absorb losses more easily than they could back in 2008 when they were extraordinarily fragile institutions. There's still some way to go. But this crisis wasn't caused by a few individuals. It was a crisis of the system of banking that we'd allowed to grow up. And it's very important that we don't demonize the individuals, but we do keep cracking on with changing the system. … I go to schools and speak to six formers and others, and I found before the crisis that a disturbingly high proportion of them instead of wanting to become engineers or scientists or musicians, wanted to go and work in the city. Why? Because they wanted to make a lot of money. Now I think they don't really want to go and earn money if it's being earned in a way that creates enormous damage to the rest of society. And I think that's a very healthy thing.

In a speech in August 2007 you described our banking system as 'much more resilient than in the past'. How do you look back on that analysis now?

Well, it clearly wasn't as resilient as it as it was in the past. And I think we had that we had believed that the financial system as a whole was more resilient. Because the risk was spread away from the banks towards hedge funds and other investors who had bought all the derivative instruments, and therefore we thought the risk was in the hands of people who knew how to manage it. And I think we learnt that that was not true and that the banks themselves, while apparently having sold these instruments to other financial firms, in fact were still holding the liabilities for them, and they themselves had borrowed so much from the rest of the financial system … that the banks were very fragile and once people lost confidence in the banks, then they couldn't obtain funding and they couldn't lend to anyone else.

David Blanchflower has said that hindsight isn't good enough – we pay the Governor a large salary to have some foresight. What do you make of that?

Well, right through my career at the bank, people have said, oh, we pay the Bank of England to anticipate the future. That's complete nonsense, because many things happen in the future that no one can foresee. Let me give an example now. None of us know what is going to happen to the Euro area. And anyone who says today that they know exactly what will happen to the Euro area is a charlatan. Of course, after the event, the airways will be full of people who say, I knew, and many of them will have said it, but they didn't know at the time. What you pay the Bank of England for is to understand the nature of the system and to respond in the right way. And we did.