BoE's King says new bank rules need to be clearer
By David Milliken | November 23, 2012 1:00 AM EST
Politicians need to define more clearly what banking services they want to ring-fence from risky investment bank activity when they write new rules, Bank of England Governor Mervyn King said on Thursday.
New laws going through Britain's parliament may not protect the public from the cost of another bank crisis if they leave room for banks to renegotiate them with future regulators like the BoE, King told legislators.
"We haven't got to the clarity required," King said to a parliamentary committee looking at the new laws.
"It would be wrong to leave it purely to the discretion of the regulator, because that would increase the pressure of lobbying of banks directly on the regulator and indirectly on the government and parliamentarians," he added.
Britain has stopped short of completely splitting investment bank activities from mainstream banks - something King favours - and instead is working on rules to ensure that banks' day-to-day deposit-taking and lending activities are kept separate from riskier investment banking.
The Bank was not responsible for bank regulation during the financial crisis, but from next year it will take over from the Financial Services Authority, assuming the legislation under discussion passes through parliament.
King said parliament was right to start by defining banking services that should be ring-fenced and protected, rather than attempting to list all the investment banking activities that a ring-fenced bank should not carry out, as has been suggested by former U.S. Federal Reserve Chairman Paul Volcker.
However, there is disagreement about where the line is drawn and if, for example, mortgage lending, small business lending, or offering foreign exchange derivative contracts to exporters should be allowed in the ring-fenced part of the bank.
This made it important for the ring-fence to be reviewed several years down the line, King said.
For now, King said he opposed ring-fenced banks offering derivatives, and also said it would be hard to define what counted as a small or medium-sized business for lending purposes. Rather than forcing a business to change bank as it grew, it may be better for it to do most of its banking outside the ring-fenced area, he added.
But Paul Tucker, King's deputy and likely successor when King steps down next June, told politicians that it was important small business lending stayed within the part of a bank that would be safest in a crisis.
Tucker also doubted that a full separation of investment banking would improve financial stability more than a partial one, as the collapse of a stand-alone investment bank would still cause major damage.
But bank shareholders' increased reluctance to fund investment banking meant banks' management had a growing incentive to hive off this type of business or conduct it in a less risky fashion, King said.
"I feel that the economics of investment banking is changing - has changed considerably - and that itself is driving the new generation of leadership in banks to recognise that it is in their own interest now to change the culture," he said.
(Additional reporting by Alessandra Prentice, Li-mei Hoang, Peter Schwartzstein, Natalie Huet and Dasha Afanasieva; editing by Ron Askew)
Most Popular Slideshows
- Kate Middleton Suffocated in Kensington Palace, Queen Elizabeth Reported War With The Duchess [PHOTOS]
- Brad Pitt Still in Love with Ex-Wife Jennifer Aniston, Staying with Angelina Jolie for Sake of Kids, Claims Brad's Psychic
- 2014 MTV Video Music Awards: Everything To Know [PHOTOS]
- Miranda Kerr Broke Her Silence: Not Pregnant With James Packard’s Baby [PHOTOS]
Join the Conversation
- Tourre on stand says email in SEC case 'not accurate'
- Syrian authorities blocking access to needy in Homs - Red Cross
- Faith in European Union at low ebb, EU poll says
- Former UBS banker gets 18 months, $1 million fine, for muni bid-rigging scheme
- U.S. judge halts challenges to Detroit's bankruptcy bid
- James Foley Beheading Video Has Play-Acting Portions – Video Experts Say
- Apple iPhone 6 Release Date, iPhone 6C or 6L Anticipation: Three Things Should Matter To New Phone Shoppers
- Upcoming Sony Xperia Z3 With Dual-SIM Support Gets Approved In China; Full Specifications Revealed; Amber-Coloured Xperia Z3 Tipped
- More Nexus 8/Nexus 9 Release Confirmed with More Leaks and Out of Stock Nexus 7 and 10
- James Foley: Release of Beheading Video by ISIS Meant to Attract More Recruits to Join the Cause – Intelligence
- 2015 Ford Mustang: Right-Hand Drive Pony Car To Be Available In Australia Next Year
- Google Works on Powering Up Chromebook Line to Kill Competitors, Nvidia Joins with Acer for New Killer Laptop