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Governor seeks more bank powers Governor seeks more bank powers
(about 5 hours later)
The Governor of the Bank of England has called for the Bank to gain more powers so it can carry out its new role of promoting financial stability. The governor of the Bank of England has called for greater powers to allow it to fulfil its new role of promoting financial stability.
In a major speech in London, Mr King compared the bank to a church which sees its congregation at key events but is ignored in the interim. In a major speech in London, Mervyn King said the Bank could no longer act "like a church" whose congregation "ignores its sermons".
He said how the central bank would apply its new powers was "not clear". His remarks appeared to be at odds with those made earlier by the chancellor.
The major lesson of the finance crisis was that authorities lacked the means to take effective action, he added. Alistair Darling told the same event he had no plans to fundamentally change the current system of regulation.
Mr King, delivering the annual Mansion House speech, said the bank could not continue acting "like a church" whose congregation "ignores its sermons", but said it was not entirely clear how the Bank would be able to discharge its new statutory responsibility. At present, oversight is carried out jointly by the Treasury, Bank of England and Financial Services Authority.
"Like the church, we cannot promise that bad things won't happen to our flock - the prevention of all financial crises is in neither our nor anyone else's power, as a study of history or human nature would reveal." But Mr King, delivering the annual Mansion House speech, said the major lesson of the financial crisis was that these authorities lacked the means to take effective action to prevent excessive risk taking at banks.
But warnings were unlikely to be effective when people were being asked to change behaviour which appears to be highly profitable, he added. He said reform of the Bank's powers was vital if it was to fulfil the role it had been asked to.
At the same event, the Chancellor said he had no plans to fundamentally change the oversight of finance firms. "Warnings are unlikely to be effective when people are being asked to change behaviour which seems to them to be highly profitable," he said.
This came in contrast to plans unveiled earlier on Wednesday by US President Barack Obama, which involved the most significant reform of finance regulation since the 1930s Great Depression.
The BBC's business editor Robert Peston said the comments by Mr King are bound to be seen as an attack on the Chancellor because "the Treasury has resisted significant changes to the allocation of regulatory responsibilities between the Financial Services Authority, the Treasury and Bank of England".
The Treasury has resisted significant changes to the allocation of regulatory responsibilities Robert Peston, BBC business editor Robert Peston's blogThe Treasury has resisted significant changes to the allocation of regulatory responsibilities Robert Peston, BBC business editor Robert Peston's blog
"So it's not entirely clear how the Bank will be able to discharge its new statutory responsibility if we can do no more than issue sermons or organise burials."
"Blaming individuals is no substitute for acknowledging the failure of the system," the governor added.
'Right people'
The chancellor, on the other hand, did blame those at the heads of financial institutions.
And while he said there could be no return to "business as usual" for UK banks, he did not lay out plans for radical, structural change.
Instead, he called 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," the chancellor said. "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."
Mr Darling's approach came in contrast to plans unveiled earlier on Wednesday by US President Barack Obama, which involved the most significant reform of finance regulation since the 1930s Great Depression.
The BBC's business editor Robert Peston said the comments by Mr King were bound to be seen as an attack on the Chancellor because "the Treasury has resisted significant changes to the allocation of regulatory responsibilities between the Financial Services Authority, the Treasury and Bank of England".
Alistair Darling: "We cannot go back to business as usual"
'Too big''Too big'
Mr King outlined the problems of the finance sector, saying it had become too "big and too highly leveraged". Mr King also outlined what he saw as the problems of the finance sector more widely, saying it had become too "big and too highly leveraged".
"One important practical step would be to require any regulated bank itself to produce a plan for an orderly wind down of its activities," he said."One important practical step would be to require any regulated bank itself to produce a plan for an orderly wind down of its activities," he said.
He said whatever the shape and rules governing the finance system long term, "change was necessary". Banks had entered the financial crisis with "inadequate" levels of capital to absorb losses, he said, suggesting that smaller institutions might be a safer bet in the future.
"If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big.""If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big."
Rules Both the Governor of the Bank of England and the chancellor spoke of signs of recovery but remained cautious.
But in contrast, the Chancellor said the current regulatory system was not to blame for the credit crunch, but instead pointed to the heads of financial institutions.
Alistair Darling: "We cannot go back to business as usual"
The banking system, which includes a tripartite system, with the Treasury, Bank of England and Financial Services Authority (FSA), has been widely criticised for failing to prevent excessive risk taking at banks.
But Mr Darling said: "The solution is not as simple, as some suggested, as restricting the size of banks", adding that smaller institutions could also threaten the financial system.
While the banking system has been helped by increasing capital and isolating their impaired assets, more needed to be done, notably to increase the availability of credit - an essential tool for economic recovery.
Looking ahead, he said a change of culture was required and the focus had to be long-term wealth creation, not short term profits.
He said staff needed to be "rewarded for long-term success, not for failure".
Both the Governor of the Bank of England and the Chancellor spoke of signs of recovery but remained cautious.
Mr King said that "there are some signs that the British economy is beginning to stabilise" but said recovery could be "protracted".Mr King said that "there are some signs that the British economy is beginning to stabilise" but said recovery could be "protracted".