BRITAIN'S banks must expect to make lower returns in future as they take on greater responsibility for risk-taking, the Bank of England warned yesterday.
Paul Tucker, the Bank's deputy governor, told the British Bankers' Association (BBA) that the premiums paid by banks for the new deposit insurance scheme would be risk-based.
Speaking at the BBA annual conference in London, Tucker conceded that th
e new scheme, combined with an increase in capital cushion requirements, meant banks "returns will be somewhat lower than they have been".
Asked if this would put banks into a "vicious circle" of taking more risk, Tucker replied that the sector had to admit that recent returns had been "fantastically high", and may have contributed to recent problems.
He added: "We cannot have a regime where the upside for risk taking goes to shareholders and management, but the downside falls to the general taxpayer."
His warning came as the City minister revealed that both the Bank of England and the Financial Services Authority (FSA) might get a bigger regulatory role supervising the financial services industry.
Playing down reports of a power struggle between the two, Paul Myners told the conference there was a "very high degree of co-operation and collaboration" between the authorities charged with policing banking .
FSA chairman Adair Turner also waded into the storm over the future regulatory landscape, claiming he read accounts of a spat between his organisation, the Bank and the Treasury "with little recognition".
But he also said "certainty" on regulation may not arrive until after the next election.
The Bank's views on curtailing the size of institutions was questioned by HSBC chairman Stephen Green, who said it was "unrealistic" to think that the industry could be restructured to the extent that individual institutions avoided being "too big to fail".
Green, an ordained Church of England minister, also argued for an end to "greedy and short-termist" pay packages in the financial sector and urged the City to act to regain public trust.
"The public standing of bankers is now at one of its lowest levels for decades," he said.
Myners echoed this view and said government interventions to help the financial industry had brought with it responsibilities for the City which would go beyond regulation.
"With implicit and explicit guarantees come moral duties, and obligations to behave in a manner consistent with the good of society," he said.
Referring to Chancellor Alistair Darling's planned publication of a White Paper on banking regulation next week, Myners said some had called for a complete overhaul of the regulatory system.
But he said there was "no simple solution; no obvious answer".
The Bank of England's demands for more responsibility under the new Banking Act have been growing louder in recent weeks, but appear to have fallen on deaf ears amid speculation of a rift between the central bank and the Chancellor.
But Myners did add: "Given the significance of the changes in global financial markets we will need to look at giving both the FSA and the Bank of England additional responsibilities and powers."
The full article contains 519 words and appears in The Scotsman newspaper.
