Mervyn King: 'Never has so much money been owed by so few to so many'

With City bonuses set to top £6bn this year, the Governor of the Bank of England echoes Churchill in devastating indictment of the banks

By James Moore

The Governor of the Bank of England launched a stinging attack on the behaviour of the banking industry last night, just hours before a leading economic think-tank prepared to publish figures showing the total bonus payouts to City workers in January will soar to £6bn.

Mervyn King described the £1 trillion of support given to banks by the taxpayer as "breathtaking" and "unsustainable". He said: "To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform." Mr King argued that banks took huge risks because they knew they would be bailed out and because they were seen as "too big to fail". He called for sweeping reforms to the way they are supervised.

His words are poised to re-ignite the row over taxpayers' support for the sector and the way bankers are paid. The Centre for Economics and Business Research (CEBR) will add fuel to the fire with its figures, which show a rise of 50 per cent in bonuses this year compared to last year's combined payout of £4bn across the industry.

King accuses bankers of 'playing with fire'

Labour's poor regulatory system 'ignited the fuel' that led to the credit crisis

By Sean O'Grady

In an extraordinarily outspoken speech last night, the Governor of the Bank of England, Mervyn King, described the regulatory system framed by Gordon Brown in 1997 as "inadequate", claimed that wrongly incentivised bankers had been "playing with fire", and said that a central tenet of the Financial Services Authority's new approach was a "delusion".

Such failures had, suggested Mr King, meant that "we shall all be paying for the impact of this crisis on the public finances for a generation".

Close to £1 trillion of public money has been devoted to supporting the financial sector. Mr King called the sums "breathtaking" and "not sustainable in the medium term".

"Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we are now.

"It is important that banks in receipt of public support are not encouraged to try to earn their way out of that support by resuming the very activities that got them into trouble in the first place," he said.

The current "tripartite" system of regulation was framed by Gordon Brown when he became Chancellor in 1997, at which point banking supervision was transferred from the Bank to the FSA. The basic architecture of the system has been recently reaffirmed by the Chancellor, Alistair Darling, while the Conservatives have said that they will return oversight of banks to the Bank of England.

Despite the risk that the Bank itself is being politicised by this controversy, Mr King laid into the Brown-inspired "inadequately designed regulatory system", which, he said, "ignited the fuel" that led to the conflagration that has engulfed the nation. Mr King added that "the past two years have shown how dangerous it is to let bankers play with fire", adding that "it is a matter of the incentives they face", pouring fuel of his own on to the debate about bankers' pay and bonuses.