RPT-UPDATE 2-BoE’s King says banking imbalances growing-paper

* Banks should not be too important to fail, King says

* Says banks lacks moral attitude of manufacturers

* Still a hawk on inflation despite missing target

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LONDON, March 4 (Reuters) – Imbalances in the banking system
are growing again and could lead to a repeat of the financial
crisis, Bank of England Governor Mervyn King said in an
interview published in Saturday’s Daily Telegraph.

He said the problem of banks being too big to be allowed to
fail has yet to be solved. “The concept of being too important
to fail should have no place in a market economy,” he said.

Asked by the paper whether the financial crisis could
return, he said: “Yes. The problem is still there. The search
for yield goes on. Imbalances are beginning to grow again.”

King has long argued for more decisive action to prevent a
re-run of the crisis that pushed the global financial system to
the point of collapse in 2008.

He criticised a culture of short-term profits and bonuses
within banks. “Bankers were given incentives to behave the way
they did. That’s what needs to change. We must resolve this
problem,” he said.

He said traditional manufacturing industries operated in a
more “moral” manner than banks. “They care deeply about their
workforce, about their customers and, above all, are proud of
their products. (With the banks) there isn’t that sense of
longer term relationships,” he said.

Regulatory changes in the wake of the crisis will see the
Bank of England become Britain’s main banking supervisor from
2012. Before then an independent banking commission, set up to
look at splitting up the country’s top banks, will deliver its
final report in September.

King said he remained an inflation “hawk” despite inflation
hitting 4 percent, stubbornly above the Bank’s 2 percent target.

“It’s odd to read that I am terribly doveish. Before the
crunch, there were 14 occasions where I was in a minority in
voting for higher rates. Since then, there has been one occasion
where I was in a minority the other way,” he said.

UK interest rates have stood at 0.5 percent since March 2009
but markets are now betting on two to three rate rises over the
course of this year.

The latest Bank minutes showed that three of the nine
Monetary Policy Committee members voted for a rate rise in
February.

(Reporting by Tim Castle;editing by Sofina Mirza-Reid)