Governor of Bank of England warns of ‘new crisis’

The Bank of England governor has warned of another banking crisis unless important reforms take place in the financial sector.

In an interview with The Daily Telegraph, Mervyn King said the problem of banks being “too big to fail” had “not been solved” and imbalances in the banks “are beginning to grow again”.

“The concept of being too important to fail should have no place in a market economy,” he said.

A government-commissioned report on whether or not Britain’s biggest banks should be broken up will be published by Sir John Vickers later this year.

The Bank of England, which decides monetary policy such as the interest rate, will also assume the role of the banking regulator once the Financial Services Authority is abolished in 2012.

Mr King said banks had lost the morals of other more traditional industries that “care deeply about their workforce, about their customers and, above all, are proud of their products. (With the banks) there isn’t that sense of longer term relationships.

“If it’s possible (for financial services firms) to make money out of gullible or unsuspecting customers, particularly institutional customers, (they think) that is perfectly acceptable.”

Mr King’s support for reducing the budget deficit has been criticised.

But his response to those who say he has compromised his independence is that “it is inconceivable that the governor has no view on the size of the deficit and the need to reduce it”.

“It would be a dereliction of duty for me not to warn,” he said.

Mr King also continued to defy those who claim the bank’s ultra-low 0.5% interest rate is to blame for inflation reaching an unhealthy 4%.

He accepts “there’s a perfectly reasonable case for raising it now” but that doing so too soon would be a “futile gesture”.

Source: Sky News