BoE Governor presses Chancellor for major financial regulatory reform
Mervyn King, the Governor of the Bank of England, is calling for major regulatory reform, but Chancellor Alistair Darling said there are no plans to change the current financial regulatory system.
The news comes as US President Barack Obama is proposing a major reform of banking regulation in order to prevent future meltdowns of the US banking system.
Mr Obama described the reforms as biggest overhaul of the system since the 1930s, which will see major banks put more money aside against future losses to prevent excessive risk taking.
However, returning to the UK, Mr King and Mr Darling are in dispute with regard to the future regulation of the City.
In his annual Mansion House speech to the City, Mervyn King called for more power to intervene in the actions of banks seen to be adopting risky behaviour.
Mr King said: “If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure.”
“Either those guarantees to retail depositors should be limited to banks that make a narrower range of investments, or banks which pose greater risks to taxpayers and the economy in the event of failure should face higher capital requirements. Or we must develop resolution powers such that large and complex financial institutions can be wound down in an orderly manner. Or, perhaps, an element of all three,” Mr King added.
However, the Chancellor said there are no plans for radical, structural change to the current regulatory system.
Instead, Mr Darling is calling for “a change of culture” in which bank staff were “rewarded for long-term success, not for failure”.
“Bank boards must have the right people of the right skills and the right experience to manage themselves more effectively and they need to be equipped to ask the right questions. Their focus must be on long-term wealth creation and not short-term profits,” said Mr Darling.
However, Derek Simpson, Unite’s joint general secretary, said: “Tinkering with the regulatory system is not an option, there needs to be radical reform.”
Referring to the latest unemployment figures, which are at a 12-year high. Mr Simpson said: “You only have to look at the unemployment figures to see what the bankers have done to our economy.”