UK banks says criticism from BoE’s King is outdated

* UK banks hit back after criticism from central banker

* BoE’s King sees risk of new banking crisis

* Row puts pressure on coalition to maintain tough line

By Keith Weir

LONDON, March 5 (Reuters) – Britain’s banks said on Saturday
they had acted to make their businesses safer, clashing with
Bank of England Governor Mervyn King who warned of the risk of a
fresh financial crisis in a scathing interview.

“The banking industry recognises that some of its number got
it badly wrong during the crisis. Since then the industry has
reformed radically,” said Angela Knight, Chief Executive of the
British Bankers’ Association said in a statement.

“We entirely agree that no bank should believe it can fall
back on the taxpayer,” she added.

In a rare interview, King warned that imbalances in the
banking system were growing again and could lead to a repeat of
the 2008 financial crisis.

King, who as governor will take over control of banking
regulation in 2012 under a new regulatory regime, said the
problem of banks being too big to be allowed to fail has yet to
be solved. [ID:nLDE72404L]

“The concept of being too important to fail should have no
place in a market economy,” he told the Daily Telegraph.

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.”

The BBA’s Knight said King’s assertion was outdated.

“The changes from top to bottom within the industry have
ensured the risks are well controlled,” she said.

“All banks have put recovery and resolution plans in place
to answer the too-big-to-fail question and so safeguard
customers and the taxpayer against the remote consequences of
any future failure.”

BAILOUT

Britain spent tens of billions of pounds bailing out Royal
Bank of Scotland and Lloyds Banking Group during the banking
crisis and has been left with large stakes in each.

King criticised a culture of short-term profits and bonuses
within banks and was scathing about the way in which they treat
their customers.

“Bankers were given incentives to behave the way they did.
That’s what needs to change. We must resolve this problem.”

He said traditional manufacturing industries operated in a
more “moral” manner than banks.

“If it’s possible to make money out of gullible or
unsuspecting customers, particularly institutional customers,
(they think) that is perfectly acceptable,” he added.

The outspoken comments come at a sensitive time with an
independent banking commission, set up to look at splitting up
the retail and investrment banking arms of the country’s top
banks, to deliver its final report in September.

The comments also put pressure on finance minister George
Osborne to maintain a tough line with the banks.

The government brokered a deal with Britain’s four main
lenders last month to rein in bonuses and boost lending,
particularly to smaller businesses.

However, the opposition Labour Party branded the agreement,
known as “Project Merlin” as a damp squib.

(Editing by Keiron Henderson)