Banks and policy-makers ‘let it slip’ in the run-up to the financial crisis, the Governor of the Bank of England has said, calling for ‘radical reform’ of the financial system.

Speaking at the Trades Union Congress (TUC) annual conference on 15 September, Mervyn King told union officials that their ‘members, and indeed the businesses which employ them’ were entitled to be angry about the crisis and subsequent recession which originated in the financial services sector.

With an admission of a failure to recognise the risks that had built up in financial markets, King said: “Investors, banks and regulators had been swept up by the apparent success of modern finance.”

He said the realisation that many assets held by banks were ‘opaque and hard to value’ had led to justifiable concern about the solvency of those banks.

King is only the second Bank of England Governor to address the TUC conference; the first governor to address the conference was Eddie George in 1998.

King called for radical reform of the financial sector, with banks required to hold more capital and a lower ratio of debt. He said this should be about improved regulation but just as with every other company in the economy ‘banks that get it wrong must be allowed to fail, without risk to ordinary depositors or taxpayers.’

Employment figures published on 15 September by the Office for National Statistics showed an increase of 2,300 in the number of people claiming jobseekers allowance.

King told the conference that unemployment was higher than before the crisis but lower than many had feared a year ago.

Commenting on the speech, the Liberal Democrats treasury spokesman, Lord Oakeshott, said he agreed with King’s call for radical reform of the financial system.

“It just isn’t fair when banks have to be bailed out to protect the rest of us from them. That must mean stopping banks being too big to fail – splitting their risky investment banking from high street banking.”

Oakeshott said the governor had sent a powerful message to the Banking Commission, which has been asked by the Treasury to recommend structural and non-structural changes in the banking sector to improve stability.

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