Bank of England chief welcomes Obama's bank plan

posted: 15 DAYS 2 HOURS AGO

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LONDON -The Bank of England's governor on Tuesday welcomed U.S. President Barack Obama's proposals to shake up the banking sector, but cautioned against imposing capital requirements that would constrict lending.

Testifying to a Parliamentary committee, Mervyn King said that no single plan was the answer to restructuring.

"What the proposals last week did was to make very clear that radical reform is on the table," King said.

"One way or another we have to reform the financial system," he added.

King's comments appeared to put him at odds with Treasury Chief Alistair Darling, who has been cool to Obama's proposals.

Obama has proposed a tax of 0.15 percent on the liabilities of large financial institutions to recoup at least $90 billion spent rescuing the sector from collapse.

Darling told The Scotsman newspaper in an interview published Saturday that Britain was not considering a similar plan. Instead, Britain is imposing a one-off 50 percent levy on bank bonuses above 25,000 pounds ($40,700). It has also introduced a new 50 percent tax rate for top earners.

King said a range of remedies is needed.

"I'm not saying that anyone should be expected to sign up immediately to any one proposal but, unless we think about it, we'll be doomed to repeat the crises on an even bigger scale," King told legislators.

"The important thing is not to choke the ability of the banking system. This is not the moment to change capital requirements, but time to change the structure."

In the past, King has advocated splitting risky but highly profitable investment banking — what some call "casino banking" — from banks' retail activities. That idea has been embraced by Obama as well.

2010-01-26 08:49:20