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Hail new King

• Robert Peston
• 19 Jun 08, 07:29 PM

Credit where credit's due (as bankers forgot in the years of the borrowing binge): Mervyn King has won almost everything he could possibly have wanted in the aftermath of the run on Northern Rock.

The that the Bank of England will have formal and legal responsibility for financial stability (it's rather shocking to learn that its current responsibilities in this area are non-statutory, that they are a boy scout's promise to do his best).

The bank will also take charge of the process of managing bust banks to protect depositors - which is what the Tories and the Treasury Select Committee had been urging, but the government had been resisting.

It's worth pausing here a second. Because it's notable that the supremely confident Treasury has conceded intellectual defeat to George Osborne, the shadow chancellor.

The Chancellor, Alistair Darling, may well have been shrewd not to fight this battle. But his predecessor, that chap who is now at No 10, would have ripped out his own tongue rather than adopt a Tory proposal.

And there's a second sense in which the government has had to admit a kind of defeat. As I disclosed yesterday, Sir John Gieve is standing down a couple of years early as a deputy governor - which is a faint embarrassment for Gordon Brown, who appointed Gieve in the face of resistance from Mervyn King.

Put all this together and the Bank of England emerges as a more substantial institution. And since King will chair a new Financial Stability Committee which will have the statutory responsibility to prevent the financial system from seizing up or worse, he probably becomes the Capo di tutti Capi for the City.

Here we can perhaps describe the governor as having carried out a 180 degree manoeuvre: he was a cheerleader back in 1997 for New Labour's reform of the bank which promoted its role in monetary policy or the fight against inflation, but more-or-less stripped it of its City leadership role.

Which is also why King, as and when he becomes the guardian of market calm, may need to go on something of a charm offensive at banks and financial firms - because many of them see him as at best aloof and at worst hostile to their interests.

But enough of U-turns, volte faces and mind-changing. In one sense Darling's makeover of the Bank is completing unfinished business.

What I mean is that when the bank's operations in setting interest rates and holding inflation in check became properly professionalised and systematised, the spirit of the gentleman amateur was not wholly purged. In particular, the court of the Bank of England, its governing board, remains a huge and unwieldy body - consisting of assorted grandees from industry, the City and the trade unions.

It will be shrunk and re-stocked with financial technocrats - who will also people the new Financial Stability Committee.

So what's that banging noise? Yes, it's the sound of stable doors slamming shut, long after depositors panicked and hobbled the Rock.

But it's not too little too late. In particular, we would all be able to sleep a bit easier in a few years if the Financial Stability Committee were to establish a partnership with the Financial Services Authority to put an effective brake on silly lending in the next era of market euphoria (yes, there will be another).

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