Mervyn King warned of the need to examine banking regulation in a speech to the Bank of Israel yesterday.
He says: “The recent challenges presented by the latest episode of financial turmoil suggest that much hard thought will need to be given to the structure and nature of banking regulation in the future.”
King adds: “In the longer-term, it seems extremely likely that banks and other ‘near’ banks, especially those that have been regarded as similar to banks in terms of their eligibility for financial assistance, will be called upon to hold more capital and a greater quantity of liquid assets than hitherto.
“It is too early to foresee clearly where the long-term direction will go.”
King claims a willingness to contemplate radical change will be necessary.
Turning to the domestic banking sector, he says the Monetary Policy Committee must not allow economic growth to slow so slowly that it pushes inflation below the 2% target.