Banking: UK's Brown tells banks to stand on their own two feet - but not yet

Speaking last night, Brown said

"In the last few weeks there’s been a lot of talk about the financial sector being too big. Some say we should cut it down in size. I want to say this.

To me, that is the wrong approach. Yes, we do need a balanced economy, building on the success of our other industries.

There are almost 100,000 jobs in the financial sector here, one million in the UK and 70 per cent outside London – not just in banks, but pensions, insurance, law and accountancy – all part of the critical mass of expertise that makes us a world financial centre.

We are not going to throw away that expertise and advantage.

Because, properly regulated and supervised by the UK Government, the financial services sector will remain important, north and south of the border, as part of a strong and diversified economy.

The banks made mistakes. They rewarded the wrong kind of behaviour and took on risks they didn’t fully understand.

So we are now putting in place, here and internationally, the necessary reforms to prevent a repeat of this crisis.

We cannot allow banks to assume that, whatever they do, whatever mistakes and misjudgements they make, they will always be rescued by the tax-payer.

We – and other Governments around the world – intervened to stabilise the banks last year because the global financial system was facing collapse.

But in future banks must stand on their own two feet.

That’s why regulators across the world are right to insist that banks’ capital ratios reflect the risks they take on.

Higher capital requirements will dampen excessive lending in the good times, as well as ensuring that profits are retained and re-invested – not paid out as executive bonuses.

Both national and multinational banks also need to put in place contingency plans, should they get into difficulty – a Living Will if you like.

When I published my reform proposals in July, I asked the Treasury, FSA and Bank of England to work on these plans.

I also emphasised the importance of competition in the market for financial services.

Competition is essential to providing customers with value and choice – and the regulatory regime needs to ensure no-one is forced to pay excessive fees and charges.

So in encouraging new bank lending, we need to do so in a way that actively protects new and smaller players in the market.

As we reduce and ultimately remove government support in the banking sector, we will do so in a way that proactively encourages new entrants, to build a competitive and healthy banking sector.

Banks with Government shareholdings are now restructuring their businesses – and we will ensure that happens in a way that promotes the vibrancy of the sector and supports new banks entering the market.

That’s why I have proposed that, from now on, the Office of Fair Trading addresses market access issues for providers of financial services in its annual update.

There is more to be done, here and internationally – as we will discuss at the G20 Finance Ministers meeting in London this weekend.

We will see reform through, so that we emerge from this crisis with a stronger global banking system and more effective financial regulation in every country."