BANKS must overcome “psychological scarring” induced by the financial crisis and start taking more risk, a senior Bank of England official said yesterday.
Andrew Haldane said banks should pay smaller dividends to shareholders in order to meet capital requirements while also increasing risk.
Yet he also suggested that capital requirements could be relaxed.
“The Financial Policy Committee, like the Monetary Policy Committee, needs to act ... in response to these developments,” he said, referring to the recent downturn. “Its job is to cushion the fall as well as arrest the rise in credit and debt.”
Risk is likely to be “over-priced” due to current market jitters, Haldane said, calling for action to the authorities to counter-act market sentiment.
“Memories of financial disaster are now fresh, as after the Great Depression [of the 1930s], causing an over-estimation of the probability of a repeat disaster,” said Haldane.