The outgoing deputy governor of the Bank of England today warned watchdogs are in danger of becoming “dazzled by rules and regulations”.
Speaking at a hearing of the Treasury Select Committee Paul Tucker said: “The idea of a perfect set of rules is absolutely for the birds.
“It will always go wrong. You have to have a regime that can deal with failure... and make it normal life.”
Tucker said the tough stress tests being imposed by the Bank of England were an important tool in keeping Britain’s banks safer.
He said the Bank had learned lessons from earlier “flawed” stress tests conducted by European watchdogs, which allowed even some weakened Spanish savings banks to pass. He also warned that the Bank wouldn’t be able to assess the state of British banks’ huge overseas businesses without the help of overseas watchdogs.
Tucker said it had been a mistake for the Bank to “retreat” into setting interest rates when the last Labour government gave it independence but handed supervision of banks to the Financial Services Authority.