London: Bank of England Governor Mervyn King, making probably his final public comments before retiring, accused British banks of lobbying senior politicians to undermine a new system of financial regulation.
King — who has had a combative relationship with Britain’s lenders in his 10 years as governor — said on Tuesday some banks had contacted the offices of Prime Minister David Cameron and finance minister George Osborne to protest against looming regulatory decisions.
“It’s also important that banks don’t leave conversations with the supervisors and feel the next step is to telephone No.
11 or even No. 10 Downing Street, and lobby officials or politicians to put pressure on supervisors to back down,” King said, referring to Osborne and Cameron’s addresses.
The BoE gained powers to supervise banks on April 1, and last week it ordered them to raise 13 billion pounds ($20.0 billion) of extra capital and meet a new cap on lending ahead of international peers to curb risk in the financial sector.
This has prompted some bankers to complain privately that higher capital requirements and limits on leverage are hampering their ability to lend in support of government efforts to boost the fragile domestic economy.
King said that in the run-up to this decision, some banks - which he did not name - had asked top government officials to “put pressure” on the BoE to tone down its requirements.
“At least one conversation took place, that I know of. I think it is very important that this not be done,” King said, referring to contacts between government and the Bank of England’s new regulatory arm.
While banks were entitled to lobby government on the general shape of banking law, for them to try to influence specific supervisory decisions risked making a mockery of independent regulation, King said.
King also criticised banks for complaining to the media about regulatory decisions during negotiations.
He was speaking to members of parliament’s Treasury Select Committee, a body of lawmakers who monitor the finance ministry and have generally supported the BoE’s tough stance on banks.
Britain has returned bank supervision to the BoE to try to avoid a repeat of the mistakes made in the run up to the 2008 financial crisis, when the government had to pump 66 billion pounds of public money into Royal Bank of Scotland and Lloyds Banking Group to save them from collapse.
However, politicians are also keen to ensure banks lend more to Britain’s economy as it struggles to recover from the crisis, and that Lloyds and RBS are returned to the private sector without loss to the public purse - goals that bank executives say are threatened by regulatory uncertainty.
“JUMPED THE GUN” Separately, King also told lawmakers that markets had “jumped the gun” about when central banks are likely to start raising interest rates after the US Federal Reserve signalled a timetable for ending its bond purchases.
Yields on US and other government debt leaped last week when Fed Chairman Ben Bernanke said the US central bank might start reducing its bond buying later this year and possibly end it by mid-2014.
King said the markets had over interpreted these comments.
“I think people have rather jumped the gun thinking this means an imminent return to normal levels of interest rates. It doesn’t,” he said in his final appearance as governor before parliament’s Treasury Committee on Tuesday.
“The Federal Reserve has merely said that the easing, in which it is still engaging, may taper at some point depending on economic conditions.” King added that economic growth would need to be stronger before interest rates could rise.
“The view that we are definitely at the beginning of the end, that we are definitely at the point where we need to raise interest rates, I think is a premature judgment about where we are, and no central bank has moved rapidly down that course.”
