King used a speech in New York to outline several options for the industry, including a capital ratio far above the levels set by the Basel III agreement last month, and a complete separation of retail and investment banking to eliminate what he described as financial alchemy.
“If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not coexist with risky assets,” King said in his Bagehot Lecture at the Buttonwood Gathering.
He said Basel III should be complemented by a “basket of different measures” to rein in risk-taking. “In the area of financial stability, it makes sense to have both belt and braces,” he added.
He dismissed claims in the industry that the nine-year timetable for implementing the Basel III capital rules was too quick, and warned that the international rules were not a silver bullet.
“If it is a giant leap for the regulators of the world, it is only a small step for mankind. Basel III on its own will not prevent another crisis,” he said.