Bank of England Governor Attacks Banks and Regulatory System

Mervyn King, governor of the Bank of England, has delivered a speech in which he accuses the U.K. banking industry of failing to reform and the U.K. government of failing to have an adequate regulatory system in place.

Mr King, governor of the Bank of England since 2003, told business leaders in the Scottish capital Edinburgh that the £1 trillion ($1.6 trillion) of taxpayer's money that had been used to rescue the banking industry, which he suggests has been "playing with fire", following the recent global financial crisis was "breathtaking" and the burden of providing that support will be carried for a generation. According to the Independent Mr King told his audience:

Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we are now.

It is important that banks in receipt of public support are not encouraged to try to earn their way out of that support by resuming the very activities that got them into trouble in the first place

The words of Winston Churchill were the inspiration for Mr King as he also noted:

To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform

As the New Statesmen reports Mr King's comments come at a time when the banking industry he has rounded on is preparing to pay out bonuses worth billions of pounds. Expectations in the City, the name by which the finance industry in London is commonly known, are that those annual bonuses will total £6 billion ($9.5 billion), which would represent a rise of 50 percent from the previous round of bonuses. Mr King, who the Guardian says has been supported in his comments by shadow chancellor George Osborne, has asserted that one particular problem within the U.K. banking industry is that it is dominated by just four large groups, two of which are now majority owned by the state. But if Mr King was scathing about the banking industry itself he was equally so regarding the regulatory efforts of the U.K. government, for which current Prime Minister Gordon Brown was primarily responsible in his role as Chancellor between 1997 and 2007. Transferring oversight of the banking industry from the Bank of England to the Financial Services Authority (FSA) was one move made by Mr Brown back in 1997 and the FSA's attempts to tighten regulations in the aftermath of the worst of the financial crisis are described by Mr King as a "delusion". One reform that Mr King considers important is the separation once more of retail/utility banking from activities within the investment banking sector. The Independent explains how such a dual system operated in the U.S. for several decades under the terms of the Glass-Steagall Act. That act was repealed in the late 1990s and whilst there was no equivalent act in the U.K. there was reportedly an unwritten agreement that was similar in scope to the Glass-Steagall Act. The Big Bang reforms in the U.K. in 1986 are said to have ended that largely informal agreement. With regard to the public finances in the U.K. the Guardian confirms the figures released on Tuesday by The Office for National Statistics which shown a £15 billion ($24.5 billion) deficit for September and a record deficit for the first six months of the year of £77 billion ($126 billion). However growth data due for publication on Friday is expected to show that a recovery, however modest, is under way. A recovery which a premature cut in public spending and rise in taxes could possibly undermine.