Mervyn King: Banks should be allowed to fail

Mervyn King, the governor of the Bank of England, has warned people in banking jobs that banks should be made small enough so that they can be broken up without damaging the economy should they fail.

Speaking to MPs on the House of Commons Treasury Select Committee, Mr King said it was up to regulators to be tougher on large financial institutions.

"Regulators have to be tough enough on banks to say we don't believe your structure is simple or small enough for us to be able to allow you to fail, therefore you must change the way you organise your activities," he stated.

Mr King added that it was vital no organisation was allowed to become "too being to fail".

However, while admitting that growth was around ten per cent below what was predicted in 2007, Mr King did say the UK should expect fairly buoyant growth rates in the short-term as the country comes out of the recession.

Earlier this month, Lloyds and RBS were ordered to sell off hundreds of their branches to reduce their market share in the UK banking industry.

Updated: 24 November 2009.
Categories: banking-and-financial-services, finance-and-accounting, market-and-industry-news.