Here’s the set-up line for the story: Two central bankers walk into a London restaurant …
Mervyn King tells the tale at the start of his lecture “Lessons from the Global Financial Crisis,” in a speech given upon receipt of the Paul A. Volcker Lifetime Achievement Award from the National Association for Business Economics (February 27, 2018). I’m quoting from the prepared text for the talk. Of course, King was Governor of the Bank of England from 2003-2013, while Paul Volcker was Chair of the Federal Reserve from 1979-1987. This is how King tells the story of their first meeting back in 1991:
“I first met Paul in 1991 just after I joined the Bank of England. He came to London and asked Marjorie Deane of the Economist magazine to arrange a dinner with the new central banker. The story of that dinner has never been told in public before. We dined in what was then Princess Diana’s favourite restaurant, and at the end of the evening Paul attempted to pay the bill. Paul carried neither cash nor credit cards, but only a cheque book, and a dollar cheque at that. Unfortunately, the restaurant would not accept it. So I paid with a sterling credit card and Paul gave me a US dollar cheque. This suited us both because I had just opened an account at the Bank of England and been asked, rather sniffily, how I intended to open my account. What better response than to say that I would open the account by depositing a cheque from the recently retired Chairman of the Federal Reserve. I basked in this reflected glory for two weeks. Then I received a letter from the Chief Cashier’s office saying that most unfortunately the cheque had bounced. Consternation! It turned out that Paul had forgotten to date the cheque. What to do? Do you really write to a former Chairman pointing out that his cheque had bounced? Do you simply accept the financial loss? After some thought, I hit upon the perfect solution. I dated the cheque myself and returned it to the Bank of England. They accepted it without question. I am hopeful that the statute of limitations is well past. But the episode taught me a lifelong lesson: to be effective, regulation should focus on substance not form.”
