King urges reform of banking sector

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In his annual Mansion House speech to the City, Mervyn King said reform was necessary to rebuild trust in the financial sector.

While Chancellor of the Exchequer Alistair Darling warned there could be no return to "business as usual" for UK banks, he did not lay out plans for radical change.

But Mr King said rules must be reviewed because the banking system had failed, adding: "Whatever the ultimate shape of the structure and regulation of the banking system, and as many of you have said we need to think carefully to get this right, change will be necessary.

"The costs of this crisis are not to be measured simply in terms of its impact on public finances, the destruction of wealth and the number of jobs lost.

"They are also to be seen in the lost trust in the financial sector among other parts of our economy."

Mr King said methods to help ensure financial stability needed "sharpening and refining."

The Governor went on: "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 was 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.