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Gordon Brown this afternoon slapped down Bank of England governor Mervyn King for urging the break-up of the biggest banks.
The Prime Minister rejected Mr King's argument, telling the Commons that it would make no difference.
"As for the restructuring of the banking system, as to whether there should be investment banks on the one side and retail banks only on the other side, he has got to remember that Northern Rock was effectively a retail bank and it collapsed," Mr Brown said.
"Lehman Brothers was effectively an investment bank without a retail bank and it collapsed. So, the difference between having a retail and investment bank is not the cause of the problem.
"The cause of the problem is that the banks had been insufficiently regulated at a global level and we have got to set the standards for that in the future."
In a speech in Edinburgh last night Mr King severely criticised the Government for failing to regulate the banks.
He appeared to back Tory calls for the splitting up of banks that were "too big to fail". He said: "The case for a serious review of how the banking industry is structured and regulated is strong." The governor also said "an inadequately designed regulatory system" was to blame for allowing the financial crisis to spiral into a firestorm.
Shadow chancellor George Osborne said of Mr King: "His analysis of how the Government's system for regulating banks failed and how there has been 'little real reform' since is one I share."
Reader views (7)
Our great financially untrained ex-chancellor opens his ignorant mouth again. Why doesn't he just shut up, resign and then crawl back into the woodwork? The man is a moron.
- Poor Pensioner, London/England, 22/10/2009 01:57
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I think Brown's comments miss the point. As I understand the Governor was saying that there are those Banks that should enjoy 'protection' in the event of disasters and those that shouldn't. The assumption being that so called 'retail banks' would fall in the first category, whilst the other 'wholesale institutions' where the whole concept of risk is more complex should not. As far as Northern Rock was concerned it would appear that it was the victim of poor management who incidentally were working to the wrong or flawed business plan. Adequate regulation and supervision both from outside and withinthe business should have sounded the alarm.
- Sam Dickins, London, 21/10/2009 16:56
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It matters not what Broon says - he'll be gone in May 2010
- John, Leighton Buzzard, Beds, 21/10/2009 15:39
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Of course he said this. His default position on everything is 'Do Nothing'. 'Caution'. 'Wait and See'. 'Head down'. 'I want my Mum'. He only acts when the position has passed the drama stage and is well on the way to a crisis.
- Alex C, London, 21/10/2009 15:02
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Some of the banks should have been allowed to go bust.
The banks are returning to their old ways.
The Banks should be made to pay back the government before any bonus's are paid. Everyone else in the country is having to cut back. Also bankers saleries are far too large.
- Pauline Hopkins, Walton on Thames, 21/10/2009 14:40
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You can't regulate hyper-active speculation, but perhaps, perhaps you can fire-wall it, so that sound businesses can continue to trade despite the exits of over-enthusiastic masters of the universe.
- Bloke, Lambeth, 21/10/2009 14:15
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Of course no lessons have been learnt: to support the system taxpayers' money should have been given only to well run responsible banks like the Co-op and the delinquent ones allowed to go bust. There would have been a lot of short-term pain but the system would not have failed and by now would have been renewed. Like spoilt children, the deliquent banks now think they can carry on doing what they like as members of a de facto unaccountable financial elite.
- Richard Kennard, Welling, 21/10/2009 07:26
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