MercoPress. South Atlantic News Agency

Bank of England governor attacks banking industry failure to reform

Mervyn King: never has so much (taxpayers’) money been owed by so few to so many

Bank of England Governor Mervyn King has launched an attack on the banking industry's failure to reform despite “breathtaking” levels of taxpayer support. The Governor warned the public would be paying for the financial crisis “for a generation”.

And he said there was no reason why guarantees could not be limited to traditional banking rather than casino-style trading.

Despite almost £1 trillion spent propping up banks, Mr King said: “To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.”

His comments come as City firms prepare for bumper bonus payouts a year on from the near-meltdown, helped by rising stock markets and a lack of competition. Last week investment bank Goldman Sachs said it had earmarked a mammoth £10.3 billion in compensation and benefits for staff for the first nine months of 2009 alone.

At a speech to business leaders in Edinburgh, the Governor said the current arrangements were impractical and added that “it was hard to see why” support could not be limited to retail banking.

He said: “Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we now are.”

He said banks should not be encouraged to earn their way out of state support by “resuming the very activities which got them into trouble in the first place” and called for a “serious review” of how the banking sector is regulated.

Banks already face plans to make 'living wills' for their orderly wind-down in cases of failure but further options include “separation of activities... or ever increasingly detailed regulatory oversight”. “Although there are no simple answers, it is in our collective interest to reduce the dependence of so many households and businesses on so few institutions that engage in so many risky activities,” the Governor said.

The Bank of England will later this week lay out details of policy tools which it hopes will “turn down the music just as the dancing gets a little too wild”.