The “worst may still be ahead” for Britain’s banking sector, according to the Bank of England’s deputy governor, as he warned that bank balance sheets were still not strong enough to withstand the “end-of-the-world risks” that still existed.
Paul Tucker told an audience at the British Bankers’ Association: “There is a tangible probability – not a high probability – that the worst may still be ahead”, and called on lenders to hold more capital.
The frontrunner to take over from Sir Mervyn King as governor of the Bank also called for an end to the get-rich-quick culture of the City.
Mr Tucker said that bank bosses should be partly paid in debt linked to financial performance to ensure they have a strong interest in their company’s fortunes.
He suggested partly paying senior management in subordinated debt – one of the first forms of capital to be written down when companies run into trouble.
Mr Tucker said: “Having managers exposed to instruments whose value depends on the survival of their firm would give them a healthy incentive to maintain a safe and sound bank.”
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