Unsurprisingly, the latest Bank of England Financial Stability Report continues to play down the role of monetary and regulatory policy failures in creating the conditions for the financial crisis.

The Bank's view, like that of former Fed Chairman Alan Greenspan, is that current woes mainly reflect reckless behaviour by banks and other financial institutions, which wise central bankers and regulators were apparently largely powerless to resist.

In the UK context, the story goes as follows. In the early 2000s British banks embarked on a major balance sheet expansion, offering credit to consumers and companies on loose terms. Domestic deposit inflows failed to keep pace with the faster growth of lending, so banks bridged the shortfall by borrowing in international wholesale markets. They also allowed their asset expansion to run ahead of increases in equity, resulting in a rise in leverage. By the time the US subprime crisis broke, banks' funding and capital structures had been fatally weakened.

So far, so convenient. The story can, however, be told in a different way. In an effort to avoid a phantom recession, the MPC lowered interest rates to well below a "neutral" level in the early 2000s. Credit expansion duly accelerated, boosting domestic demand and the current account deficit. A larger deficit is a mirror-image of an increased net inflow of capital. In this case, the inflow was channelled through the banking system, thereby partly financing the increase in lending. Meanwhile, regulators failed to raise concerns about the rise in banks' equity leverage, since their preferred measure of capital strength - the now-discredited ratio of Tier I capital to "risk-weighted assets" - remained stable and well above the internationally-agreed minimum.

The competing accounts are not merely of academic interest. The Bank's self-absolving emphasis on the role of excessive bank risk-taking has contributed to its reluctance to perform its traditional lender-of-last-resort function as well as the penal design of the recent "rescue" plan. This approach will no doubt succeed in achieving Mervyn King's expressed goal of making banking "boring" but arguably at significant and unnecessary cost to the economy.