The favourite to succeed Sir Mervyn King as Governor of the Bank of England yesterday issued a stark warning to Britain's banks: "The worst may still be ahead."
Paul Tucker, currently deputy governor at the Bank, also called for an end to the City's "get rich quick" culture, and told bankers they face another shake-up over their pay to tie it even more closely to the success or failure of the firms they work for.
At the British Bankers' Association annual conference in London, he said: "There should be a review of the structure of remuneration for desk-level bankers – tying pay to the medium-term success of the firm.
"Putting it bluntly, that would make it less easy to get rich quick irrespective of the quality of business transacted or the compliance culture in their part of the firm."
Despite agreements to force banks to hold more capital agreed by international supervisors in Basel, Switzerland, Mr Tucker said they may not be enough and urged banks to hold more.
"If we get a tidal wave, we may all be grateful that there are a few billion more in capital here and there in the banking industry, keeping banks in the private sector rather than the dead hand of state ownership."
Mr Tucker stressed that allowing banks to fail and exposing holders of unsecured bank debt such as bonds to losses is a key element of regulatory change. The latter suffered virtually no impact from the financial crisis.
He added: "Once debt holders are exposed to loss, the authorities need to consider whether to require management to be paid to a significant extent in subordinated debt." This meant that the G20, European Union and Financial Services Authority (FSA) should all "revisit" their codes on bankers' remuneration.
Mr Tucker said: "We may not be able to abolish the occasional waves of optimism that grip humanity and the tendency to excess they set off. But we can and must dampen their effects on the financial system and economy."
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