HIGHLIGHTS-Bank of England policymakers before Treasury Committee

LONDON, June 25 (Reuters) - Following are highlights of remarks made by Bank of England policymakers at a hearing before the Treasury Select Committee on Tuesday:

KING ON FORWARD GUIDANCE

"If that (forward) guidance can be made more systematic and more comprehensive then so much the better. And that is the issue that my colleagues together with my successor will report back to you and the Chancellor in the August inflation report."

KING ON UNWINDING STIMULUS

"It's a contingent path. And it's contingent on conditions returning themselves to normal in order to allow interest to return to normal. We are nowhere near that yet. And I think people have rather jumped the gun thinking this means an imminent return to normal levels of interest rates. It doesn't."

"Until markets see in place policies to bring about that return to normal economic conditions, there is no prospect for sustainable recovery and without that prospect for sustainable recovery, markets understand that it will not be sensible to return interest rates to normal levels."

KING ON REACTION TO FED

"Certainly I think that the view that we are definitely at the beginning of the end, that we are definitely at the point where we need to raise interest rates, I think is a premature judgement about where we are and no central bank has moved rapidly down that course. The Federal Reserve has merely said that the easing in which it is still engaging may taper at some point depending on economic conditions."

KING ON EU SETTING POOR EXAMPLE ON BASEL III

"We've seen that the European Union is set on a path of deviating from the recommendations of Basel III, put forward by the whole of the Basel committee and agreed unanimously under my chairmanship at Basel two years ago.

"That's a very poor example to set the rest of the world. I wouldn't be at all surprised if some of our American colleagues in the regulatory community there argue that they will want a system which also differs from Basel III, but in a way that sets higher requirements."

KING ON LLOYDS

Asked whether he agreed with Osborne that Lloyds is in better shape today for a sale than RBS, King replied "Yes".

KING ON AUSTERITY IN PARTS OF EURO AREA

I've never used the word austerity in terms of it being part of the solution. Austerity in those countries which have no other instruments of policy to bring about growth has been a disaster and you see that in the euro area very clearly."

KING ON BOE'S SUPERVISORY POWERS

"The real lesson from this is you can publish as many Financial Stability Reports as you want, no one will take any notice unless you have the ability to do something about it. The Bank of England now does have the ability to do something about it - it is the banking supervisor."

WEALE ON WHY HE DID NOT VOTE FOR MORE QE

"Could I say first of all, that I voted with the remit in mind. Obviously the difference with the Governor has been very marginal.

"I am very aware that inflation has been above target now for quite a long time and comparing it with the period before the financial crisis, inflation expectations have become elevated at least to some extent."

KING ON UNRESOLVED PROBLEMS

"There will be a challenge at some point when interest rates return to normal levels, asset prices will fall back in nominal terms. And if the level of indebtedness around the world hasn't been reduced by then, there will be serious problems of insolvency in financial and other institutions."

"I've been very disappointed at the failure of the world to put in place the policies required to create economic conditions when it would be desirable to return to normal levels of interest rates."

DALE ON LENDING TO SMALL BUSINESSES

"My interpretation is that there has been some improvement, but far less of an improvement (than to bigger businesses) which is why we extended the Funding for Lending Scheme and gave the scheme incentives in that way.

"To be clear, we want net lending to SMEs to be growing more than it currently is ... but relative to what we had feared a year ago, the lending performance, even to SMEs, is better than we would have feared."

DALE ON SUCCESS OF FUNDING FOR LENDING SCHEME

"I think, if anything we have been surprised by how little banks have actually borrowed from the Funding For Lending scheme, and I think that in part reflects the success of the scheme.

"The scheme has helped to bring down funding costs more generally and, as a result, for many banks the cost of borrowing from us via the Funding for Lending scheme is not materially lower than their cost would be now to access wholesale or retail funding."

WEALE ON TIMEFRAME FOR RETURN TO NORMAL RATES

"I certainly think it would be quite wrong to try and give any timetable for any sort of return to a more normal pattern of interest rates."

KING ON DEBT RESTRUCTURING IN EURO ZONE

"I think the bigger changes though are for other countries, outside the UK, the whole structure euro area, they have not yet found a way of bringing about significant sustained corrections to real exchange rates in balances. There are large amounts of debt out there, some of which have been restructured but those I'm sure there's more to come."

KING ON BANK LOBBYING

"(Politicians and officials) have clearly come under tremendous pressure themselves from banks, they've been lobbied.

"They have passed on concerns.... various conversations have taken place with others and I think it is very important that people simply should say if they are lobbied."

"There were certainly calls made to number 11 and even in some cases to number 10 to try put pressure on supervisors to modify, be more reasonable in their judgement."

KING ON BANKS' RELATIONSHIPS WITH SUPERVISORS

"I think banks need to think very carefully about the relationship they have with supervisors. It's quite clear that things in their mind have changed from when the Bank was last responsible for banking supervision.

"I don't think that banks should conduct conversations with the supervisors through the front pages of the Financial Times or indeed any other newspaper and I think it's important that they realise that these conversations are for the supervisors to have confidentially with the bank."

BEAN ON STIMULUS OPTIONS

"At the present juncture, the Committee believes that further asset purchases and targeted policies to restore the functioning of the monetary transmission mechanism, such as the Funding for Lending Scheme, represent more reliable tools for stimulating aggregate demand than does a further reduction in Bank Rate.

But a reduction in Bank Rate, including to below zero, remains an option which the Monetary Policy Committee will keep under review lest circumstances change in the future."

DALE ON ECONOMIC OUTLOOK

"It looks like we are entering a period of modest, but sustained, economic growth. Business surveys and near-term indicators have firmed since the beginning of the year and some of the headwinds holding back growth in recent years have eased. But the hangover of adjustments and repair left by the financial crisis means that the recovery is likely to continue to be weak by historical standards."

DALE ON INFLATION OUTLOOK

"CPI inflation looks set to rise over the next few months and to fluctuate around 3% for much of the summer and the autumn. But the weakness in wage growth means that domestic cost pressures remain well contained, and inflation is likely to fall back to around the 2% target over the next two years or so as the current price pressures stemming from abroad and from recent administered and regulatory decisions fade."