The governor of the Bank of England has proposed a radical overhaul of the banking system, saying the central bank should be given new powers and banks should be made to draw up wills in case of a crisis.
Mervyn King, addressing business leaders in London last night, said change to the structure, regulation and culture of the banking system was necessary to rebuild trust in the financial sector.
British finance minister Alistair Darling, also speaking at the same event, urged big changes to banking boardrooms, blaming their poor judgement for the financial crisis that dragged the world into a downturn.
King said methods to help ensure financial stability needed 'sharpening and refining'. 'We have a real opportunity now to put that right and regain the trust that's been lost,' he added.
King suggested that every regulated bank should be required to produce a plan for the 'orderly wind-down of activities'. 'Making a will should be as much a part of good housekeeping for banks as it is for the rest of us,' he said.
Hinting that the Bank of England was not being handed enough power by government to help bring about change, King likened it to a church, which sees its congregation at important events but is ignored in the interim.
Meanwhile, Darling told the same business leaders that there was a need to strengthen the regulatory system and banking culture.
'All of us need to learn lessons and I believe this process has to begin in the boardroom,' he said.
Darling said transparency and openness were 'absolutely paramount' in the financial system, and stressed that banks must not take risks on complex investments in the pursuit of profits.
Darling also welcomed reforms to the US financial regulatory system announced by President Barack Obama yesterday, aimed at preventing another crisis, saying they were similar to fundamental changes made in Britain ten years ago.
Britain, the euro zone, Japan and the US were pulled into a severe recession last year as a result of the worldwide financial crisis and credit crunch.
The crisis erupted in August 2007 as the world's leading banks stopped lending to each other amid concerns about exposure to complex and opaque investments in the collapsed US subprime or high-risk home loan market.
