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Chancellor Alistair Darling may not be rushing to stand shoulder to shoulder with Barack Obama in his war on banking, but the US President has found an unlikely ally in the form of the Governor of the Bank of England.

Mervyn King added his voice to calls for radical reform of the global banking sector, but he distanced himself from any notions of limiting the size of any individual institution.  He did however warn the financial sector that it could no longer expect the taxpayer to bail it out if there were further problems.

"I don't think anybody is either ahead or behind the curve, but what the proposals announced last week did I think was to make very clear that radical reform is on the table and that is the most important thing,” he told the House of Commons Treasury Select Committee.

King has maintained a position that any bank that is said to be ‘too big to fail’ is probably too big to begin with. This is not a view that has won him any friends in Whitehall.  To this view he added another suggestion that may win do him no favours: that multinationals should be broken into national bodies so as to be able to isolate any problems more easily when they occur

”It is very difficult to handle the failure of institutions that span frontiers, and I think the first step is to have a simple, clear, broad-brush approach to how we break up an international institution that failed and different parts of the globe would take responsibility for different bits of it,” he said. “I think that we are likely to see over the next few years a movement in the direction of subsidiaries rather than branches because that makes it a whole lot easier for the national regulators to do their job."

King said that the Obama proposals were “certainly relevant in the UK context” because they showed that “tinkering with the capital requirements may not be enough and that structural changes may also be necessary.” In fact he was adamant that significant change is necessary.  "Unless we actually think about the deep structure issues that have led us to where we are, we'd be doomed to go through it again, but on a larger scale," he said.

But he emphasised that the problems facing the banking system were significant and wide-ranging and not something that would be easily addressed with a single solution. "These are very difficult questions; there are no simple answers,” he said. “The most important thing is that we are prepared to countenance major reforms.  We need to recognise a range of different solutions will be necessary. It won't be easy to bring about, and we can't do it overnight."