Turner Makes Claim for BOE Job as Bank Culture Reform Sought

Financial Services Authority Chairman Adair Turner
Financial Services Authority Chairman Adair Turner said, “The most intelligent thing to do is focus on the immediate challenges and make decisions on the future when and if they have to be made.” Photographer: Jason Alden/Bloomberg

Financial Services Authority Chairman Adair Turner gave his first indication that he is interested in succeeding Bank of England Governor Mervyn King as he laid out proposals to reshape London’s finance industry.

“I would obviously not rule myself out” of consideration for the BOE post, Turner, 56, said in an interview in London yesterday. “It is something I’ll have to think about when the time comes.” Turner, who has been chairman of the FSA since 2008, also laid out ideas to reform banking culture and rebuild trust in financial services following the Libor scandal which led to the resignation of Barclays Plc’s Robert Diamond.

Bank executives face “the challenge of setting clearly from the top a culture which tells people that there are things they shouldn’t do, even if they are legal, even if they are profitable and even if it is highly likely that the supervisor will never spot them,” Turner said in an interview with Bloomberg Television.

Diamond stepped down as chief executive officer of Barclays on July 3 following the bank’s admission that it submitted false Libor information to benefit derivatives trades and bolster its own positions. Barclays, Britain’s second-biggest lender by assets, was fined a record 290 million pounds ($450 million) in U.K. and U.S. probes last month.

Libor, PPI

The recent scandals involving the London interbank offered rate and improperly sold insurance products has ruined the public’s trust in the industry, Turner said. He said reforming the banking culture has to start with the most senior levels of management questioning excessively profitable products.

Rather than “congratulate the sales teams and increase the targets,” if they make unexpectedly large profits, executives should “ask searching questions about whether the product is truly in consumers’ interest,” Turner said in a separate speech yesterday.

Turner’s term as head of the FSA will end next year when the regulator is split into two agencies. A prudential regulator will become part of the BOE, while an independent Financial Conduct Authority will oversee consumer issues.

Bookmaker Paddy Power Plc has improved Turner’s odds to replace King from 9/2 to 7/2 since last month.

Other candidates for the Bank of England post include Paul Tucker, currently deputy governor, former Cabinet Secretary Gus O’Donnell and Mark Carney, governor of the Bank of Canada, according to Paddy Power.

Increased Powers

The next governor of the Bank of England will have increased powers, including supervision of U.K. banks, while confronting some of the toughest economic conditions since the World War II, a crisis of confidence in the sovereign debt of peripheral euro zone states and the task of implementing stricter financial rules for banks and hedge funds.

“The challenges of the moment are sufficient to keep me very busy and they continue to mount with the challenges of the euro zone, the challenges of the FSA transition, the challenges of Libor,” Turner, who was a vice chairman of Merrill Lynch Europe from 2000 to 2006, said in the interview. “The most intelligent thing to do is focus on the immediate challenges and make decisions on the future when and if they have to be made.”

Spain’s bailout of its regions’ risks pushing the nation closer to needing a full international rescue as it struggles to maintain market access with 10-year bond yields hovering at 7.5 percent.

Spanish Meetings

Spanish Economy Minister Luis de Guindos visited Berlin yesterday for crisis talks with German counterpart Wolfgang Schaeuble. After taking on as much as 100 billion euros ($121 billion) of bailout loans to aid banks, the risk for Prime Minister Mariano Rajoy’s government is that the additional burden of helping regions pushes bond yields to unaffordable levels.

European lawmakers should speed efforts to create a banking union for euro region banks, giving them direct access to state funds, Turner said.

“The euro zone will not be a stable system without rapid progress towards a banking union,” Turner said, adding that policy makers must “cut the fatal loop” between banks and sovereigns by allowing lenders direct access to the European Union’s public bailout funds.

Turner said he is “very concerned” about the euro area’s sovereign debt crisis, and that the link between banks and state funding problems would have to be cut for the currency bloc to survive.

Turner joined the FSA a week after the collapse of Lehman Brothers Holdings Inc. in September 2008. Before joining the regulator he had set up McKinsey & Co.’s Russia and Eastern European practice from 1992 to 1994 and served a stint as director general of the Confederation of British Industry from 1995 to 1999.

As long as his career “continues to be challenging, challenging in lots of different ways, I’m basically a happy person,” Turner said.

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