Paul Tucker Warns Worst 'Might Not Be Over'
The Bank of England's (BoE) deputy governor has warned "the worst may still be ahead" for the UK's finance industry, as he urged banks to boost their capital defences.
Paul Tucker - who is a front-runner for the job as BoE governor when Sir Mervyn King steps down next year - said threats to the industry persist.
"We are in very difficult circumstances at the moment in the sense that huge risks are behind us," he said.
"There is still a tangible probability - not a high probability - that the worst may still be ahead."
The UK's banks have been forced to build up large capital defences following the financial crisis of 2007-09, when banks including RBS and Lloyds had to be rescued by UK taxpayers.
But speaking at the British Bankers' Association's annual conference in London, Mr Tucker warned that even the new Basel rules for minimum reserves - designed after the financial crisis - were not enough.
"Basel I, II, III, IV and V are not calibrated for the kind of end of the world risks that lie within the realms of the possible at the moment," he said.
"If we get a tidal wave, we may all be grateful that there are a few billion more in capital here and there in the banking industry, keeping banks in the private sector rather than the dead hand of state ownership."
He also pushed for an overhaul in the way bank bosses are paid - proposing that they could be paid partly†in debt to ensure they have a strong interest in their company's future.
"Having managers exposed to instruments whose value depends on the survival of their firm would give them a healthy incentive to maintain a safe and sound bank," he said.
Also at the conference, Rolls Royce's finance director urged regulators to find the right trade-off between regulation and financial stability.
"The balance between stability and growth is a fine judgement, which we feel is being overlooked more in favour of regulation rather than growth," Mark Morris said.
"If the patient is on the operating table, our view is, don't kill him, resuscitate him and try and keep him alive."
While Bill Michael, the head of financial services at KPMG, said the banking industry needs "a ground-breaking shift in†culture and behaviour."
"Banks have treated customers like geese - there to be force-fed financial products, whether they're appropriate or not," he said.