Economist and former member of the Bank of England's (BoE) Monetary Policy Committee, Adam Posen said while outgoing governor of the BoE Mervyn King will be remembered as being a great public servant, he made a series of misjudgements which he has to take account for.
Posen, who is also president the Peterson Institute for International Economics said King's record, including his decision to nationalize one of the U.K.'s biggest mortgage lenders, Northern Rock was "not great".
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"On the financial regulatory side, he has got a series of misjudgements, I don't think they were criminal by any means, but be it Northern Rock or the decision to kick supervision out of the bank of England and now start to take it back in – it's not a great record," he told CNBC.
Posen stepped down as an external member of the Bank of England's MPC in August last year. During his tenure at the BoE, he clashed with King, especially on the issue of quantitative easing (QE). Posen was only the second American to ever serve on the monetary policy committee of the BoE.
When asked whether King failed in terms of banking regulation, Posen replied, "pretty much".
"Failed is a little strong, he certainly didn't do great. He has to take account for that, just as he gets credit for the monetary policy side," he added.
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Incoming governor Mark Carney, formerly the head of the Bank of Canada is much better placed to tackle financial stability and banking supervision, Posen said, adding that Carney will not struggle with a "bias" towards monetary policy like King did.
Posen said Carney's experience in managing banking risk was the main reason finance minister George Osborne hired him.
"The strongest argument that Osborne and others have for hiring Mr Carney is his experience in the financial stability board, his experience managing a central bank that has more responsibilities and his experience generally as a manger in trying to make this thing work," said Posen.
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On the other hand, Posen added that Carney will face a challenging time as he will inherit a very weak recovery that is "better than stagnation but not much".
Another area where Posen disagreed with King was on the BoE's funding for lending scheme. Posen said the bank debated whether it should provide funding to small businesses directly, rather than through the banking system.
"The point of funding for lending that makes sense, is it is about credit market problems and credit supply, the problem with funding for lending is that it always goes through the same RBS, Lloyds messed-up banking system," he said.
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According to him, the scheme, which Osborne predicted would provide a "big boost" to SMEs has produced "mediocre" results so far.
All of the major U.K. high street lenders have taken part in the funding for lending scheme except HSBC. But of the four big banks participating, only Barclays has expanded its loan book since the scheme was launched according to the Bank of England earlier this month.
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Banks and building societies participating in the scheme shrunk net lending by 300 million pounds in the first quarter of the year, although the pace of lending decline eased from three months earlier.
"I had been advocating what is called credit easing directly, buying securitized SME lending, getting new lenders involved as you go around the system. That was the debate we had six months to a year ago within the current committee – do you do it through the current banks or do you do it around the system? The majority voted through the current banks – so you have got mediocre results," Posen said.
—By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave
