Darling and King spar over regulation

Chancellor Alistair Darling said bank regulators should focus more on system-wide problems, playing down suggestions on Wednesday from the governor of the Bank of England that a major priority was the size of individual banks.

In his annual Mansion House address to the City of London, Darling said banks could not go on as usual and that everyone had to learn the lessons of the last two years that have seen the global financial system to its knees.

"Anyone who thinks that we can carry on as if nothing has happened should think again. In every country we are paying a huge price for this crisis. Not just the financial cost but also a profound social and human cost" he said.

Darling called for more transparency, stronger national and international regulation, better means of dealing with failures, and a greater focus on system-wide risks.

Bank boards had to be filled with people with the right experience and skills and that "their focus must be on long-term wealth creation, not short-term profits" he said.

Darling's emphasis contrasted with that of King, who spoke at the same event.

"Privately owned and managed institutions that are too big to fail sit oddly with a market economy" King said.

"It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure." 

King said state guarantees should be limited to banks that make a narrower range of investments, that banks which posed greater risks to taxpayers should face higher capital requirements or that there could be special powers to wind down complex institutions in an orderly manner.

To date Britain has resisted some European Union proposals to centralise financial regulation, though earlier on Wednesday an aide to France's President Nicolas Sarkozy said Britain was likely to come under increasing pressure to yield.

Darling and King were on more common ground in their assessments of the economy. Both were guarded about interpreting recent signs that the country's economy may have emerged from recession as pointing to a strong upturn.

"There is still a great deal of uncertainty in the global economy" said Darling. "I remain confident but cautious."

King said that there were grounds to believe that rapid falls in economic activity were coming to an end, but that there were good reasons to think recovery would be slow.

"It is too soon to reverse the extraordinary policy stimulus that has been injected into the UK economy" he said.