LONDON (Reuters) - Breaking up banks and going it alone in reforming regulation is not the magic solution to avoiding future crises, British finance minister Alistair Darling told Reuters on Thursday.
In an interview ahead of going to the World Economic Forum in Davos, Switzerland, Darling also brushed aside concern that UK government bonds were a ticking time bomb, pointing out Britain’s funding requirements were lower than many other countries.
U.S. President Barack Obama sent shockwaves through markets last week with proposals to force commercial banks to cut ties with hedge funds and private equity funds and to stop proprietary trading.
Darling said he was still waiting to see more detail on Washington’s plan but it was clear he would have preferred a more multilateral response which would have reduced the risk of firms jumping between jurisdictions.
“I have always thought to separate banks doesn’t deal with the full problem ... It is the connections between institutions that cause problems not the legal entity,” he said.
“The large bank/small bank division again experience shows does not answer the question either of Lehmans,” he said, referring to the giant U.S. investment bank whose collapse in 2008 almost sent the entire global banking system into ruin.
More than ever, Darling said, the crisis showed that any responses had to be international.
“Everything we do has to be a global solution otherwise we will get arbitrage. We will get people simply choosing to set up shop outside jurisdictions where it might be easier.”
“The Americans want radical reform, I want radical reform. The key though is that we move from that discussion to implementation of something that is effective and we do it without delay,” he said.
The priority, he said, had to be pushing through the agreements made during the G20 meetings last year.
“In particular, I am concerned by the slow progress on the Basel process on capital adequacy.”
U.S. bond fund PIMCO made headlines this week, saying high government debt meant gilts were “resting on a bed of nitroglycerine.”
Asked about this, Darling said he had already given a credible plan that would bring down borrowing from the current record high and Britain would have no problems of raising money.
“I believe that people looking at the UK will see that we have a deficit reduction plan that halves our deficit over 4 years,” he said.
“Like all countries we have to finance our debt. The average maturity of our debt is 13.5 years compared with other countries where it is 4 to 6 years. The total amount of debt that we need to finance is less than some other countries.”
Editing by Stephen Nisbet