Downing Street Says » Mervyn King

» Wednesday, October 21, 2009

Mervyn King

Asked if the Prime Minister agreed with Mervyn King’s view on banking investment, the PMS said that the Government agreed with the Governor of the Bank of England that we must reduce the risk that banks presented to our financial system. That was why we were reforming the banking system through action taken in the Banking Act of earlier this year. We had the new Council of Financial Stability, we had strengthened the objectives and powers of the FSA and put in place new laws, which allowed us to deal quickly and effectively with banks if they got into trouble.

The concept of a living will did presage the possibility of separating some retail and investment banking. By definition, if someone was preparing for a living will then they would have to anticipate in governance terms what they might need to do in the event of the bank failing. The Governor had been talking about that in the round and it had been referred to in the White Paper, so this was an important issue. The most important point was that we must reduce in every way the risk that banks present to our financial system.

Asked if the Prime Minister would agree with the Governor that there had been very little reform of the banking system, the PMS said that the Governor and the Prime Minister were in agreement that the reform of the banking system that was anticipated needed to happen as quickly as possible. The Prime Minister had been very focussed on this issue over the last few months, including at the G20 in Pittsburgh and there was a general agreement now that reform was the way forward.

Put that Mervyn King had characterised the reform so far as very little and did the Prime Minister accept that or dispute it, the PMS said that it was not a question of accepting or disputing it; the Governor set out last night some interesting thoughts on reform. The most important thing was that we moved forward into a position where we were protected from any future failures in the banking system.

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