King calls for new powers to clamp down on banks

Sir Mervyn King, the Governor of the Bank of England, bared his claws yesterday, calling for wide-ranging new powers to clamp down on rogue banks and describing the embattled broker MF Global as "a good example of a company where, frankly, there was no public interest in saving it".

Sir Mervyn wants watchdogs to abandon a rules-based approach to policing banks and instead be given sweeping powers that would enable them to say to banks: "Look, frankly, we don't understand why your organisation needs to be so complex, we can't work out what you are doing, so you're going to have to change it; you haven't broken a rule, but too bad, you've got to change it."

Speaking to MPs in a question and answer session, he said the "culture" of City regulation needed to "get away from this game in which the regulators write ever more complex regulation and the banks and their lawyers [write] new products which are the same, essentially, as the previous products but defined in such a way as to not be caught by the latest rule and regulation".

However, he also warned that watchdogs "can't regulate everything". "So we have to have a framework in which most of these firms can fail. If they screw up, that we just let them go."

Highlighting MF Global he said: "The public interest was in making sure it was possible to administer the failure... without it causing damage to the rest of the financial system. That's what we didn't have when Northern Rock failed. That's what we have now, apart from the very big global cross-border institutions." But, he said, watchdogs and central bankers were "working on it" on an international basis and could find a solution "down the road".