Darling: We will repair trust
By politics.co.uk staff
Alistair Darling today called for governments and banks to repair the breakdown in trust, but stated new regulation must not stifle innovation.
He also confirmed the government will be holding a stake in banks and "a role in the banking sector, for some years to come".
Speaking to a Financial Services Authority (FSA) conference following Lord Turner's report into financial reform, the chancellor said: "Yes, we've got to learn from the past. And we've got to repair the damage done.
"But in reforming the system we need to look towards the world of tomorrow."
He added: "There has been a fundamental breakdown of trust in the global financial system.
"All of us - governments, regulators and the industry itself - need to work together to rebuild that trust. That process will, of course, take time - there are no instant remedies or overnight solutions."
He stated all parties needed to accept mistakes and learn from lesson.
Mr Darling explained new regulation must "walk a fine line" between sufficient regulation to safeguard public interest but not "stifle the very innovation that can benefit us all".
"Banking by its nature is about taking risks. The task is to manage that risk," the chancellor said.
"Some people see financial innovation as a bad thing.
"There are times, when the idea of a boring bank can seem like a good thing. But the truth is that innovation can be a force for good."
Further defending banks ahead of next week's G20 meeting in London which is predicted to spark mass demonstrations in the City, Mr Darling quoted President Obama stating: "We can't afford to demonise every investor or entrepreneur that seeks to make a profit."
The chancellor called for a "new compact" between banks and customers.
"Put simply, we need each other," he said.
The chancellor hit out at the folly of recent years.
"Banks everywhere took on too much risk, and worse, risk that many didn't properly understand. The boards of some banks, and their shareholders, believed this to be a one-way bet," he said.
"Times were good and not enough questions were asked. And, it has to be said, many people were happy to take advantage of those cheap loans on offer. And at the same time, across the world, regulators failed to keep up with the growing complexity of the system - complexity which meant it was hard to spot the risks, and harder still to deal with them. "
Turning to the G20 next week, Mr Darling demanded a new system of regulation "to ensure banks do not over-extend themselves - so that banks can be reined back, when they pose a threat to their own stability, and the stability of the system as a whole".
He concluded: "Restoring confidence in the banking sector is an essential precondition to economic recovery.
"Our future, and the future of the industry, depend on it."
