UK bank chief says bailouts caused 'sense of shame'

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Bank of England Deputy Governor Paul Tucker said regulators felt a "sense of shame" that taxpayers had to bail out banks after the collapse of Lehman Brothers Holdings, as they devise rules to prevent a repeat of the financial crisis.

"This is the worst moment in the working lives of anybody who was in office in central banking or in regulation," Tucker said at an event at Clare College, Cambridge University, Englandon Saturday. Regulators are working on new rules that will allow banks to fail "partly because of the sense of shame that we all have that we brought this cost to the taxpayer".

Bank regulators and policy makers including finance ministers attending this week's G-20 meeting in Paris are trying to devise new rules that will allow banks to fail without requiring taxpayer bailouts or damaging economic growth.

Tucker also said that lower returns on equity for banks would give shareholders a greater incentive to cap executive pay. Credit Suisse Group AG cut its profitability goal this month after concluding that stricter capital rules would constrain earnings. The Zurich-based bank will aim for a return on equity of more than 15 per cent over three to five years, down from a previous target of more than 18 per cent.

"By reducing their return on equity, I think myself that that will eventually have an impact on compensation too," Tucker said. "As that return on equity comes down, I think they will start to put pressure on the returns that go to managers."

Tucker said that policy makers had made some progress in the area of financial reform.

- BLOOMBERG