King attacks ‘deceitful’ banking culture

Sir Mervyn King, who refused to back Barclays chief executive Bob Diamond, added that the behaviour of Barclays’ traders underlined the need to separate high street banking from casino trading operations.

“What I hope is that everyone now understands that something went very wrong with the UK banking industry and we now need to put it right,” he said. “From excessive levels of compensation, to shoddy treatment of customers, to deceitful manipulation of one of the most important interest rates.

“We can see that we need a real change in the culture of the industry. And that will require two things, one is leadership of an unusually high order and [the other is] changes to the structure of the industry.”

Sir Mervyn’s comments came just days after Barclays was hit with record fines of £290m for trying to rig the inter-bank interest rate, and on the morning that regulators ordered several major banks to compensate small businesses who were mis-sold complex financial instruments pushed by their investment bankers.

At the Financial Stability Report press conference, the Governor twice refused to comment on whether Mr Diamond was a “fit and proper” person to be running Barclays. “That is for another day and another place,” he said. Mr Diamond is facing calls to resign over the scandal.

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Sir Mervyn King admits BoE failed over financial crisis

“We did preach sermons about the risks. But we didn’t imagine the scale of the disaster that would occur when the risks crystallised,” he said.

“With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called ‘light-touch’ regulation hadn’t prevented any of this …

He said the Bank “tried, but should have tried harder” to persuade everyone of the need to recapitalise the banks sooner and by more.

However, he claimed the Bank was hamstrung by the decision to move regulation to the Financial Services Authority (FSA) in 1997 – a reform “that would return to haunt us”. It left the Bank with the limited power of “publishing reports and preaching sermons”. Regulation is now being moved back to the Bank.

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