Bankers Assumed Unnecessary Risks
BOE Governor Believes Bankers Did Not Make The Right Calls
Bank of England Governor Mervyn King warned banks need division as part of broader reforms to protect taxpayers from a new financial crisis, according to The Telegraph.
“If they need to truly secure deposits, the only way to ensure it is insisting that such deposits may not coexist with risky assets,” said King. He argued that following a simple banking division would be harder to break the rules.
Banks already have to face the toughest legislation in recent years following the introduction of new capital and liquidity requirements through the implementation of Basel III. However, King points out that the new Basel rules are only the beginning given that “even the new capital levels are insufficient to prevent a new crisis.”
Also, Bank of England governor has criticized the “absurdity” of risk assumed by banks, according to BBC News. King said that in future banks must be obliged to rely more on the sale of shares and bonds to finance risky activities than short-term loans.
“Despite all the innovations in the financial system, its weak point was and remains the great, truly absurd indebtedness represented by the strong dependence on short-term loans.” His comments suggest that major British banks will have to hold more capital than regulations require new international.
For this purpose, banks may need to issue new shares to distribute a smaller share of profits as dividends, or to rationalize further lending. King said that the new Basel capital requirements can not solve the problem banks are too big to collapse, Barclays, HSBC and RBS. Banks have attacked the new regulations and taxes, arguing that they burden the industry so much that economic growth will suffer.11
