LONDON, March 6 Bank of England Governor Mervyn
King and Andrew Bailey, who heads Britain's Prudential
Regulation Authority, spoke to a parliamentary committee on
banking standards on Wednesday.
Following are highlights of their remarks.
KING ON IMPACT OF RBS RESTRUCTURING ON UK PUBLIC DEBT
"I would certainly be prepared to lend my support to those
who would argue that it is better to recognise it and we
shouldn't worry about the consequential impact on the apparent
scale of public debt."
KING ON MACRO IMPACT OF RBS
"The problems at RBS have actually had macroeconomic
consequences. So it is a problem."
KING ON DRAGGING ON OF RBS RESTRUCTURING
"This has dragged on unnecessarily long. I don't want to
blame anyone for this but I think the lesson of history is we
should face up to it."
KING ON TIMELINE FOR RETURNING RBS TO PRIVATE SECTOR
"In order to sell back to the private sector ... it should
not take more than a year to do this. There are plenty of people
around the world that have done this for a living, they need to
be given the authority to take decisions and get it done. That's
the whole purpose of taking banks into the public sector in
order to recapitalise them."
KING ON PUBLIC OWNERSHIP OF RBS
"The whole idea of a bank being 82 percent owned by the
taxpayer, run at arms' length from the government, is a
nonsense. It cannot make any sense.
"I know it was put there for good reason. People didn't want
politicians running banks. But I think it would be much better
to accept that it should have been a temporary period of
ownership only -- to restructure the bank and put it back. The
longer this has gone on the more difficult that's become."
KING ON BANK RESTRUCTURING
"The idea was that we needed to recapitalise the banking
system and it was necessary to restructure it and to take it
into public ownership, not because it was a good idea to put the
banks into public ownership but because the medium of public
ownership was the vehicle by which they could be recapitalised
and restructured and then sold back to the private sector.
"It's four and a half years on and there is no immediate
sign of it going back to the private sector. So I think that
means that we have not been sufficiently decisive in either
recapitalising the banks or restructuring them."
KING ON LENGTH TAKEN TO RESOLVE PPI MIS-SELLING CLAIMS
"To have this open for so long, on such a scale, is damaging
and creating uncertainty which is affecting the capital position
of the UK banking system."
BAILEY ON BANKS' "ROPY" MODELS
"There has been quite a bit of work done already by the
Financial Policy Committee to essentially tell institutions you
cannot actually run models that deliver these results.
"And that has been done in a number of ways, partly by
putting capital add-ons on, saying I'm sorry, I don't accept
"Secondly, probably the best known example is the area again
of commercial property where we have essentially thrown out a
lot of models and said I'm sorry, in essence the problem is that
these assets are too lumpy, the modelling is frankly ropy ...
and we've introduced a very simple approach which says here's a
certain set of characteristics of your assets, store those
characteristics and put it into a bucket."
KING ON FUNDING FOR LENDING SCHEME
"We knew when we created the FLS that there were at least
three major UK banks that were going to contract their balance
sheets and lending to the UK real economy. There was nothing we
could do about it. What we could do was design a scheme that
would give them an incentive to contract their lending to the UK
real economy by less than they would otherwise have done and I
think we have achieved that."
KING ON BANKERS' ACCESS TO POLITICIANS
"I was surprised at the degree of access of bank executives
to people at the very top, it was certainly easier access to
people at the very top than the regulators had."
"(Before 2007 regulators) knew that if they were tough on a
bank the chief executive could go straight to Number 10...over
time this has changed clearly since then, but the access
KING ON LEVERAGE RATIOS
"I would be much happier with leverage ratios of 10 to 20
than I would be with 25 or 33."
BAILEY ON BANKERS' REMUNERATION
"Fixed remuneration is essentially cash out of the door. It
is much harder to get fixed remuneration back once it's
paid...what we have seen this year is quite substantial progress
in two respects, one is requiring banks to reduce the pools of
variable remuneration...(and) also where...there is effectively
a cancellation of previous unvested remuneration and losing
those two incentive mechanisms before we get to a solution for
the too big to fail problem is something that concerns me."
BAILEY ON EU PROPOSALS TO CAP BANKERS' PAY
"My concern about the EU proposals is that, in setting this
hard limit, it looks quite tight, it runs the risk as you said,
that it will push up fixed remuneration because of the type of
KING ON POWERS OVER LEVERAGE
"There are some aspects, particularly on leverage, where the
financial policy committee would like to have greater powers and
where we feel that the original Vickers proposals on leverage
were the right ones and that the concessionary leverage that's
been made was a mistake and it would be better to go back to the
original Vickers proposals."
KING ON BIGGEST ISSUE FOR SUPERVISORS
"I agree with Michael (Cohrs, FPC member)that banks are
still too important to fail. Too big to fail. And I think that
is the single biggest challenge facing the new PRA."
KING ON TOO BIG TO FAIL
"On a global level, if we fail to solve the 'too big to
fail' problem, there are only two countries in the world that
will have big banking sectors - the United States and China -
because their economies are so big that their taxpayers can
afford to bail out the system."
KING ON WHETHER POWERS ADEQUATE
"The unknown question is whether the powers that we've been
given will in fact be adequate to get rid of the
"My own personal view is that it would be sensible to have a
proper review after four or five years not just of the
ring-fence but of a whole range of issues that I would put under
the umbrella heading 'Has the United Kingdom solved the