Monday, October 25, 2010

Mervyn King calls for radical reform of the global banking system

Daniel Pimlott writes on the Financial Times website:
New global rules on how much capital banks must hold are insufficient to prevent another crisis, and reforms to the financial sector need to be much more radical, according to the governor of the Bank of England.

In a speech in New York, Mervyn King listed problems with the main existing reforms to the financial system, such as the higher capital requirements demanded by the Basel III proposals, the British government’s levy on banks, and efforts to identify systemically important institutions and design better ways of letting them fail.

Reforms might need to go farther and could include demanding capital levels many times higher than the levels set out in Basel III, splitting up banks or requiring the use of debt instruments such as contingent capital that left creditors more exposed when things went wrong, Mr King said.

His comments provide a forewarning of the position the Bank is likely to take as it extends its control over financial regulation.
You can final a PDF will the full text of Mervyn King's speech on the Bank of England website.

It is certainly more radical than anything we have heard from a leading politician recently. Bank of England thinking and Treasury thinking can be two different things, but it is very encouraging if this speech gives a clue to the direction in which government economic policy will develop.

Together with today's pension proposals from Vince Cable, it gives renewed hope that the Coalition may yet proved a radical reforming government.

1 comment:

Book Collector said...

I`m inclined to agree with you on this, with the one big reservation that the B of E is taking on a more and more assertive role whilst remaining outside of any meaningful level of democratic accountability.

I don`t for one second believe that the B of E is `above` politics - there`s no such thing as a politically neutral economist and in any case one can expect governments of all shades to influence the Bank. I just want them to do so in an open fashion.