Mervyn King – change to the structure, regulation and culture of our banking system is necessary

Via Speech by MERVYN KING GOVERNOR OF THE BANK OF ENGLAND:

We need to reflect more deeply on the nature of the failures before designing a regulatory response – after all many financial markets continued to function well.  But banks entered the crisis with historically low levels of liquid assets, and inadequate levels of capital with which to absorb losses. Moreover, in the United Kingdom, the financial sector became too big and too highly leveraged.  …

As far as individual banks are concerned, we face some uncomfortable choices about the structure and regulation of our banking sector.  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. Something must give. …

There is no support in this country, and no case, for excessively bureaucratic regulation. But change to the structure, regulation and indeed culture of our banking system is necessary.  Blaming individuals is no substitute for acknowledging the failure of a system, of a certain type of banking.  We have a real opportunity now to put that right, and regain the trust that has been lost.