Darling and King split over banks

He showed little enthusiasm for the proposals in his annual Mansion House speech to the City on Wednesday night, and focused on the need for UK banks to reform internally.

In contrast, Governor of the Bank of England Mervyn King told Mansion House an overhaul is needed because the system has failed.

Mr Darling warned the banks that they must take a longer-term view and examine the health of the financial system as a whole.

He said: "We need a change of culture. Their focus must be long-term wealth creation, not short-term profits," he said.

"They must recognise their duty to shareholders is best fulfilled by acting in the interests of their customers and all - not just some - of their employees. And ensure staff are rewarded for long-term success - not for failure."

But in his speech, Mr King stressed the need for reform in order to regain the trust of the general public.

He said: "There's no support in this country and no case for excessively bureaucratic regulation.

"But change to the structure, regulation and indeed culture of our banking system is necessary. Blaming individuals is no substitute for acknowledging the failure of the system of a certain type of banking. We have a real opportunity now to put that right and regain the trust that's been lost."

And while he cautioned against hurriedly putting together a new system of regulation, Mr King said it is unclear how the Bank would meet its new responsibility for financial stability without more powers to force institutions to submit to its requests for behaviour change.