UK reforms 'will not hand regulatory role to Bank of England'
Next week's package of British government reforms to the banking system will not hand over responsibility for regulation to the Bank of England, City minister Paul Myners indicated.
The Bank's governor Mervyn King has been reported to be lobbying to take the job of regulating the larger banks from the Financial Services Authority, which was widely seen to have failed to prevent the financial meltdown of last autumn.
However, Myners today said that responsibility for "macro-prudential regulation" would not go to one individual, but remain with the tripartite system of the Bank, FSA and Treasury, which he described as "an entirely sensible and practical architecture".
"(The governor) has spoken about the Bank of England being an active participant in the process, which is what I would like to see, because the Bank has a lot of skill and resource, as also does the FSA," Myners told BBC2's 'Newsnight'.
Myners said the reforms, expected in a banking White Paper next week, would "strengthen regulation, supervision and governance to ensure that the risk of failure is significantly reduced in the future".
However, he acknowledged that the British government cannot guarantee there will be no further banking collapses.
"We don't use the word 'guarantee' because banking is inherently a risky activity," he said. "To remove all risk would be to inflate the cost of capital, which would be highly economically destructive."
Myners indicated that banks will be expected to hold onto more capital during boom periods in order to be able to absorb losses during downturns without turning to the UK taxpayer for support.
However, he appeared to reject the idea of requiring banks to divide into safe High Street operations and "casino" banks, which take big risks playing the global markets.
"That isn't the right answer," he said. "The answer lies in having enough capital to absorb losses."
Despite Mr King's recent warning that if any bank was "too big to fail" then it must be too big, Myners insisted that the crisis was not caused by institutions being allowed to grow too large.
"The problem wasn't around the large and complex banks," he said. "The banks which failed were narrow banks - Bradford and Bingley, Northern Rock, the German Landesbank."
Myners insisted that measures taken by the British government were allowing the flow of credit to businesses to resume.
"Loan extensions to small and large business is increasing," he said. "The Bank of England is regularly reporting that.
"If there was a significant shortage of credit, overdraft utilisation rates would rise. They have not risen. They have remained very stable."
