Banks pressing politicians to influence regulation: outgoing BoE governor Mervyn King

Outgoing Bank of England (BoE) governor Mervyn King has accused banks of pressuring senior politicians including the prime minister to influence financial regulation.

According to King who made his last public comments before stepping down, some banks had contacted Downing Street to protest against upcoming regulatory decisions, raising billions in additional capital.

Under the new regulations, five of the biggest banks needed to raise an extra £13 billion according to the latest estimates.

"It is...important that banks don't leave conversations with (their) supervisors and feel the next step is to telephone No. 11 or even No. 10 Downing Street, and lobby officials or politicians to put pressure on supervisers to back down," King said.

"At least one conversation took place, that I know of. I think it is very important that this not be done."

Urging chancellor George Osborne to look into the matter, Andrew Tyrie, chairman of the Treasury Select Committee, said representations of the views of banks were desirable, (but) attempts to influence the independent regulator were unacceptable.

King also accused the markets of misinterpreting the US Federal Reserve's comments over the winding down of its quantitative easing programme.

He reiterated the call from the Bank for International Settlements – the central bank's central bank – that  the time had come for governments to act following a grace period of relative stability, they had received due to the actions of central banks through artificial stimulus such as cutting interest rates and quantitative easing (QE).

According to Sir Mervyn governments had not acted quickly or decisively enough to take advantage of the time given to them by the actions of central banks to introduce policies that would "ensure a sustainable economic recovery".

He also warned that there needed to be a prolonged period of significant improvement in the economy before interest rates could return to normal levels.

He added the US Federal Reserve's announcement that it would begin to slow down its QE programme had been misinterpreted and that the unwinding of stimulus measures would happen in a careful manner. He added that his US counterpart Ben Bernanke had only said there would be reduction of QE level from the current $85 billion a month.

He told MPs at the TSC, "I think people have rather jumped the gun thinking this means an imminent return to normal levels of interest rates. It doesn't.

"Until markets see in place policies to bring about that return to normal economic conditions, there is no prospect for sustainable recovery and without that prospect for sustainable recovery, markets understand that it will not be sensible to return interest rates to normal levels."

Canadian Mark Carney would take over as the BoE governor from King next month.