BANK of England governor Mark Carney yesterday told world leaders that Britain must lead the world into united banking reform.
In a speech to the World Economic Forum in Davos, the governor said that an “integrated, open global financial system” is key to securing the recovery, but stressed he is not a “champion of the City” and the sector must ensure its own integrity.
“As the leading global financial centre, the UK will be central to completing the job of financial reform,” he said. “The UK financial system is both a global good – it supports an open global system – and a national asset.
“To realise its potential, we need our system to be safe, fair and to act with integrity. Without those foundations, the innovation for which finance in the UK is renowned will be meaningless.”
He said a safe system means “resilient banks and markets that together can absorb rather than amplify shocks”.
Carney said much had been achieved in recent years to repair the core of the banking system, with minimum capital requirements for the world’s largest banks increasing seven-fold since the financial crash.
“These banks are on course to meet these new requirements five years before the deadline, having raised more than $500 billion (£303bn) of new equity,” he said.
The Bank of England will begin annual stress tests of major institutions this year and is working with other central banks to tackle “worryingly large differences” in supervision.
But he said the private sector also had to play a part by reforming its own behaviour, as “integrity cannot be legislated, and it certainly cannot be bought”.
Warning that current levels of economic activity are unacceptable and the world economy is still under strain, he gave the strongest hint yet that UK interest rates will remain at their record lows for some time to come, and will be raised only gradually.
Pointing to the relative weakness of business output compared to Britain’s consumer-led economic recovery and the plunging jobless rate, the governor committed the monetary policy committee (MPC) to exploring a new set of forward guidance rules in its February inflation report.
The main inflationary risk from low interest rates in the UK was that of a housing bubble, he said, but that should be dealt with through tighter regulation using the new powers of the financial policy committee.
The bank recently made changes to its Funding for Lending scheme to ensure the money went to businesses and not household borrowers.
Carney’s speech came as figures from the the British Bankers’ Association (BBA) showed the number of mortgage approvals lifted to a six-year high in December in a further sign of blossoming consumer confidence, but lending to businesses continues to fall.
Some 46,521 approvals for house purchase worth £7.7bn got the green light, the highest monthly total since September 2007 and an increase of 42 per cent year-on-year.
However, the BBA’s figures also showed that net borrowing by non-financial businesses decreased by £650 million in December, while net borrowing by financial businesses fell £25.7bn.