Bank of England call for curbs on scale of 1930s reforms

By SAM FLEMING FOR MAILONLINE
Updated:

Governments need to launch a regulatory crackdown every bit as draconian as the one that followed the Great Depression, the Bank of England warned as G20 ministers gathered for a summit in St Andrews.

The cost of bailing out banks in the US and Europe alone amounts to a quarter of global gross domestic product, representing the biggest risk to government solvency, said the BoE's financial stability chief Andy Haldane.

His words came as the British Bankers' Association pleaded for caution. Its chairman, HSBC's Stephen Green, said regulatory tightening should not preempt any economic recovery.

People gather across the street from the New York Stock Exchange in New York Oct. 24, 1929. Thousands of investors lost their savings in the worst stock market crash in Wall Street history

People gather across the street from the New York Stock Exchange in New York October 1929 when thousands of investors lost their savings in the worst stock market crash in Wall Street history


'We are deeply concerned that the implementation of measures before economic recovery is assured could have a very serious impact on the real economy,' he said in a letter to Chancellor Alistair Darling.

Finance ministers and central bank governors were yesterday flying into a rain-soaked St Andrews for discussions on overhauling financial regulation and creating a new framework for sustainable growth.

Speaking before the meetings, French finance minister Christine Largarde said it is imperative that more be done to rein in the casino-style bonus culture in banking, saying 'we want to stop excesses, stop abuses'.

In his paper, Haldane said: 'Reversing direction will not be easy. It is likely to require a financial sector reform effort every bit as radical as followed the Great Depression,' he said.

'It is an open question whether reform efforts to date, while slowing the swing, can bring about that change of direction.'

Speaking before the summit, in Edinburgh, Darling said the G20 needs to develop a way of tackling bubbles in financial markets as economies recover.

'We have got to make sure we don't get ourselves into a situation where some pressure starts to rise and then it becomes bigger and bigger and when the whole thing comes to an end it has catastrophic consequences,' Darling said in an interview with Bloomberg Television.

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