17 October 2012
The “worst may still be ahead” for the banking system, the Bank of England’s deputy governor has told a gathering of leading bankers.
Paul Tucker said reserves held by banks were still not calibrated for the “end-of-the-world risks” that remained a possibility.
He added that bank bosses should be paid in debt, so they had a stake in the survival of their institutions.
Mr Tucker is a leading contender to be the Bank of England’s next governor.
Speaking at the British Bankers’ Association’s (BBA’s) annual conference in London, Mr Tucker said that the most important issue ahead was ensuring that banks could be allowed to fail in an orderly way.
This should be done without taxpayer support, he said. This would also make it easier for new, smaller entrants to the banking sector and encourage competition in a UK market dominated by a small number of institutions.
However, he also sounded a positive note for the City of London, saying that the Bank believed – if the correct structure was in place – that it would prosper in the future.
Mr Tucker was one of a number of speakers from the top table of regulators and UK banks; representatives from politics and consumer groups were also speaking.
Top bankers gathering in London are fully aware of how unpopular they are among the UK public.
If they needed reminding, then protestors greeted their arrival with placards, and the conference catchline was “restoring trust”.
Then every speaker (with not a single woman among them) made reference to the trust and reputation issue.
So did they come up with a solution?
There were plenty of suggestions – including branches offering one-stop-shop banking and easier switching for customers.
Overall, greater competition in an industry facing up to a raft of new regulation was the major focus.
And competition, said the Bank of England’s deputy governor, meant banks being allowed to fail.
Yet, you can’t imagine that allowing their bank to fold would be a particular ambition of anyone in this room.
The deputy governor said that banks could be like the rest of the market economy by being allowed to fail.
He said that by paying banks’ leadership in IOUs from their own banks, they would have a “powerful incentive” to ensure they are run safely.
Customers were becoming increasingly aware of the system of deposit protection that meant the first £85,000 of their savings, per person and per institution, was guaranteed if a bank went bust.
This was changing retail banking in a significant way, but in slow motion, he said.
There was an argument, he added, for more of the burden of this deposit guarantee to be taken on by the failing bank, rather than the rest of the industry.
Other speakers at the conference include Martin Wheatley, who will lead the new regulatory body called the Financial Conduct Authority.
The conference may also hear from Sir Nigel Wicks, who was named as the new chairman of the BBA. He was once an aide to former Prime Minister Margaret Thatcher.
“In this country and at this time, this vitally important industry is working to rebuild its reputation with its customers and to play its full part in restoring the UK’s financial stability and helping to drive its economic recovery,” Sir Nigel said.
The previous chairman, Marcus Agius, resigned in the wake of the Libor scandal, along with his role as chairman of Barclays.
Andrew Tyrie, chairman of the Commons Treasury Committee, told the conference that standards had collapsed and trust in banks broken down.
Later, Chris Leslie, shadow financial secretary to the Treasury, said that the time had come to look at the portability of bank accounts.
This would allow consumers to take their account number with them when they moved banks, encouraging them to switch between institutions and prompting more competition in the industry.
He also argued against moving away from the model of free banking. At present, many consumers do not pay for a current account, but are charged for going overdrawn or for some other services.