Mervyn King, Governor of The Bank of England, publicly clashed with Alistair darling at the Mansion House dinner last night over the best way to improve the regulation of the City.
King said:
"It is not sensible to allow large banks to combine high-street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure.
Privately owned and managed institutions that are too big to fail sit uneasily with a market economy."
However, as the Chancellor noted, restricting the size of banks is not that simple.
King also asked for more regulatory power to be given to the Bank:
"We need instruments to prevent the size, leverage, fragility and risk of the financial system from becoming too great. The resulting macro-prudential toolkit will contain a number of instruments to reduce risk, both across the system and over time."
However, the fundamental problem is the tripartite regulatory system which has no effective head. Until the system, which was introduce by Brown, is replaced regulatory issues cannot be satisfactorily addressed.
Unfortunately, as long as Brown is PM, the tripartite system will remain in place.
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