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Basel III not enough to stop another crisis, according to Mervyn King

The governor criticised banks' dependency on short-term credit to fulfill funding requirements.

Governor of the Bank of England Mervyn King spoke out against the "absurd" level of risk that banks undertook, in a critical speech on the industry he delivered to the Buttonwood Gathering organised by the Economist in New York on Monday night.

The governor criticised banks' dependency on short-term credit to fulfill funding requirements.

"For all the clever innovation in the financial system, its Achilles heel was, and remains, simply the extraordinary - indeed absurd - levels of leverage represented by a heavy reliance on short-term debt," he said.

King pushed for measures to ensure banks set aside billions in capital as equity, advocating "much, much more equity. Much, much less short-term debt."

While admitting that banking reforms could take "decades," King said that the "blueprint" were the recommendations coming from the government's independent commission on banking, led by Sir John Vickers.

He expressed his doubts about the efficacy of the new Basel minimum capital ratios or the recent £2.5bn bank levy announced by the coalition government in being able to prevent a second financial crisis.

"If [Basel III] 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," said King.