The Governor of the Bank of England has warned that Britain could face another financial crisis if the banking sector is not reformed.
Mervyn King said that imbalances in the banking sector remain and are "beginning to grow again" according to an interview published late Friday on the website of Britain's Daily Telegraph newspaper.
The U.K. allowed a banking sector to build up "which contained the seeds of its own destruction," King said. In the interview, he also expressed regret for not sounding a louder warning over his concerns before the last banking crisis, which culminated in a multibillion pound (dollar) state bailout of the financial sector.
"We've not yet solved the 'too big to fail' or, as I prefer to call it, the 'too important to fail' problem," he said. "The concept of being too important to fail should have no place in a market economy."
King accused banks of exploiting customers, citing a culture where it is "perfectly acceptable" for banks to "make money out of gullible or unsuspecting customers." That approach — coupled with an eye for short-term profits and banker bonuses — could be driving problems in the banking sector, King said.
"Why do banks in general want to pay bonuses?" he said in the interview. "It's because they live in a 'too big to fail' world in which the state will bail them out on the downside."
His comments come after the British government last month struck a deal with the country's top banks to curb bonus payments and boost lending to businesses — moves aimed at addressing a public outcry over lenders' role in the financial crisis.
In the interview, King urged lenders to take a longer-term approach toward customers, saying that good businesses are "run by people who don't think they should simply maximize profits next week."
The British government is currently considering whether to force banks to separate their retail and investment-banking arms. Business Secretary Vince Cable has been pressing for the separation, but any such moves await the publication of the report of the Independent Commission on Banking in September.
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