Mandelson calls for renewed financial confidence

Lord Mandelson has called for the financial services sector to be restored as the "backbone of the real economy".

The business secretary told an Association of British Insurers conference that the recession has been a "wake up call" for the banking industry.

And he said that the profession must never again be allowed to become a "liability" for the real economy because of "flawed regulation or poor management".

The Labour peer accepted that government could not remove all risk from the financial markets, "nor should we want to".

But Lord Mandelson called for risk to be managed as part of the wider economy.

"We need new rules on what borrowing belongs on and off the balance sheet," he told the event.

"We also need rules which ensure that the dangerous levels of leverage that characterised the balance sheets of some institutions two years ago are not repeated."

The business secretary also suggested that there was agreement on a single set of EU rules for the financial services sector, "even if we think, like others, that those rules should continue to be policed by national regulators".

Confidence must be restored in the UK economy, Lord Mandelson said, and not just "in the bullish sense".

"But confidence in asset values, in balance sheets and disclosed liabilities, in our understanding of the risks we take," he explained.

"We will neither exit the recession as quickly as we can, nor build the future strength we need, if we allow pessimism to descend on us or lower our expectations of what we can achieve."

He continued: "We seem to be seeing a deliberate political or media ploy to move us from recognising how severe and painful the present recession is, to believing that we can never recover or be as strong again. That, indeed, the country is being run into the ground."

Lord Mandelson told the ABI that "this attempt to make us feel worse about ourselves" could have an "understandable electoral motivation".

"But its effect, if we are not careful, will be felt beyond politics," he warned.

"If insecurity breeds economic hopelessness, we risk cutting ourselves off from the economic opportunities and growth markets the world economy offers us."