Regulators need a range of new policy tools to avoid a repeat of the credit crisis which brought the global economy to the brink of collapse, Bank of England Governor Mervyn King told lawmakers, adding debate on the issue will last “many years”.
“We do need a safer and more robust system ... that may turn out to be smaller,” King said. Obama’s aggressive plans to limit risk-taking in banks -- which sent a ripple through financial markets last week -- include limits on their exposure to hedge funds, private equity and proprietary trading, and capping their size.
The banking system might well become smaller as a consequence of any newly imposed measures, central bankers told the Committee, and it was key that the banking system did not impose an undue burden on the UK taxpayer in case of a bailout.
Wholesale creditors should face possible losses if banks landed in trouble, King said, rather than relying on an implicit guarantee governments would bail out banks because of their importance for the broader economy.
Politicians in Britain, France and Germany have welcomed Obama’s measures, which come amid a public outcry over lavish bonuses only a year after excessive risk-taking by banks brought the global financial system to the brink of collapse.
