BOE’s Tucker Says U.K. Recovery Requires Repair of Wounded Banks

Bank of England Deputy Governor Paul Tucker said British banks need to strengthen their resilience in order for an economic recovery to take hold.

“Right now, the recovery of the economy requires sound banks,” Tucker said in an interview on BBC News broadcast late yesterday. “We’re not going to be able to recover as well as we should if our banks remain wounded. They need to repair themselves.”

Tucker’s comments come as the BOE prepares to publish tomorrow the statement of the March 19 meeting of the Financial Policy Committee, when it discussed capital shortfalls at banks. Governor Mervyn King said in November lenders may need to make bigger provisions for future potential loan losses and the cost of regulatory fines, giving regulators until this month to report back on how much they may need.

In the November Financial Stability Report, the BOE also said banks’ risk models may be inappropriate and understating how much capital they need to hold.

The FPC is meeting on an interim basis until the bank receives new powers to oversee the financial system on April 1. Andrew Bailey, the U.K.’s chief banking supervisor and BOE deputy governor-designate for prudential regulation, told the BBC the new arrangement would improve oversight.

“The bank had a checkered history in its previous life as a supervisor of banks, it’s got to be completely different this time,” he said. Officials must “tie together much more effectively the bank’s responsibilities for monetary policy, overall stability in the financial system and the safety and soundness of the firms that we supervise.”

Consumer Protection

As the Banking Bill comes into force, the Financial Services Authority will be wound down and the Prudential Regulation Authority created within the BOE.

In addition, the FSA’s consumer-affairs division will be shifted to a new Financial Conduct Authority. Britain’s financial industry has been rocked by scandals such as manipulation of the London interbank offered rate and mis-selling of payment protection insurance and swaps.

“The key change is that the FCA has an absolutely clear objective with a single mandate which is about protecting consumers,” Martin Wheatley, chief executive officer-designate of the FCA, told the BBC. “Conduct is at the heart of the FCA, and I think that’s what will make it different.”

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