In an interview published in Saturday’s Daily Telegraph, Bank of England Governor Mervyn King warned that the imbalances in the banking system are increasing and warned of a possible repeat of the financial crisis.
The perception about big and important banks needs to change, he argued. “The concept of being too important to fail should have no place in a market economy”, he said.
When asked about the possibility of a repeat of the financial crisis, he said: “Yes. The problem is still there. The search for yield goes on. Imbalances are beginning to grow again”.
Mr. King has long advocated a more definitive action to plug the gaps of the financial system that almost brought the world economy to a halt in 2008.
“Bankers were given incentives to behave the way they did. That’s what needs to change. We must resolve this problem”, he said attacking today’s banks’ culture of concentrating on short-term profits.
Further criticising banks’ immoral practices, he said traditional manufacturing businesses are a better lot. “They (manufacturers) care deeply about their workforce, about their customers and, above all, are proud of their products. (With the banks) there isn’t that sense of longer term relationships”, he said.
An independent banking commission – set up to study the effects of breaking up of large banks, will submit its final report in September. The Bank of England (BoE) will become the primary supervisor of banks after that in 2012.
King rejected the allegation of being soft on inflation saying he remained a ‘hawk’ despite consumer price index more than doubling to the bank’s targeted 2 percent per annum mark.
“It’s odd to read that I am terribly dovish. Before the crunch, there were 14 occasions where I was in a minority in voting for higher rates. Since then, there has been one occasion where I was in a minority the other way”, he argued.
The key interest rate has been kept constant at an all-time low of 0.5% since March 2009 by the BoE, lest it derails the economic recovery. However, minutes of the latest meeting of the bank’s Monetary Policy Committee (MPC) shows that three out of nine members voted for a rate hike and markets are factoring in a rate hike by may this year.