LONDON: Britain's banks said on Saturday they had acted to make their businesses safer, clashing with Bank of England Governor Mervyn King who warned of the risk of a fresh financial crisis in a scathing interview.
"The banking industry recognises that some of its number got it badly wrong during the crisis. Since then the industry has reformed radically," said Angela Knight, Chief Executive of the British Bankers' Association said in a statement.
"We entirely agree that no bank should believe it can fall back on the taxpayer," she added.
In a rare interview, King warned that imbalances in the banking system were growing again and could lead to a repeat of the 2008 financial crisis.
King, who as governor will take over control of banking regulation in 2012 under a new regulatory regime, said the problem of banks being too big to be allowed to fail has yet to be solved.
"The concept of being too important to fail should have no place in a market economy," he told the Daily Telegraph.
Asked by the paper whether the financial crisis could return, he said: "Yes. The problem is still there. The search for yield goes on. Imbalances are beginning to grow again."
The BBA's Knight said King's assertion was outdated.
"The changes from top to bottom within the industry have ensured the risks are well controlled," she said.
"All banks have put recovery and resolution plans in place to answer the too-big-to-fail question and so safeguard customers and the taxpayer against the remote consequences of any future failure."
BAILOUT
Britain spent tens of billions of pounds bailing out Royal Bank of Scotland and Lloyds Banking Group during the banking crisis and has been left with large stakes in each.
King criticised a culture of short-term profits and bonuses within banks and was scathing about the way in which they treat their customers.
"Bankers were given incentives to behave the way they did. That's what needs to change. We must resolve this problem."
He said traditional manufacturing industries operated in a more "moral" manner than banks.
"If it's possible to make money out of gullible or unsuspecting customers, particularly institutional customers, (they think) that is perfectly acceptable," he added.
The outspoken comments come at a sensitive time with an independent banking commission, set up to look at splitting up the retail and investrment banking arms of the country's top banks, to deliver its final report in September.
The comments also put pressure on finance minister George Osborne to maintain a tough line with the banks.
The government brokered a deal with Britain's four main lenders last month to rein in bonuses and boost lending, particularly to smaller businesses.
However, the opposition Labour Party branded the agreement, known as "Project Merlin" as a damp squib.
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