Osborne calls for new bank accord

George Osborne says banks must be allowed to expand, but responsibly

Shadow chancellor George Osborne has called for a "new settlement" between banks and society to prevent a repeat of the current financial turmoil.

Mr Osborne said institutional reforms proposed by the Conservatives would control the risks taken by banks and keep their debt levels in check.

The regulatory system set up by Gordon Brown in 1997 was "broken", he added, and taxpayers needed more "protection".

Labour says the Tories have reneged on their support for its bank rescue plan.

'Negligent'

The Conservatives accept the government had to step in to prevent a collapse of the banking system but argue that Mr Brown's response has been ineffective and that businesses and families are suffering as a result.

Addressing the origins of the banking crisis, Mr Osborne said Labour had been "either woefully ignorant or wilfully negligent" about the risks taken by leading banks in recent years.

The Conservatives would give the Bank of England new powers to monitor bank balance sheets in future, he said, to ensure they did not overexpose themselves.

Regulators would also be required to take a wider range of economic indicators, including house prices, into account when setting inflation targets.

"We need a new settlement," Mr Osborne said in a speech in London.

"The new settlement must allow a profitable and successful financial services sector in the UK, able to explore new markets abroad and provide credit to businesses and families at home. But it must also provide protection for taxpayers and the economy from the excesses we have seen over the last 10 years."

On Friday, Tory leader David Cameron said a new form of "moral capitalism" must emerge from the current financial crisis.