ONE of the UK's largest banks should be recapitalised and broken up into smaller, regional outfits, the Archbishop of Canterbury (above) said on Monday.

Archbishop Welby spoke at an event in Westminster on Monday evening, organised by the Bible Society, on the question: "How do we fix this mess? Long-term solutions to the financial crisis."

He said that banks that were distanced from local communities did not have a "broad sense of promoting the well-being of a region of which one is an integral part". He had concluded that "at least part of the banking system should be local, not London-based, and have its root in its own community. . .

"In simple terms, we need to recreate the local, and the easiest way to do that . . . is to kill two birds with one stone by recapitalising at least one of our major banks and breaking it up into regional banks."

Archbishop Welby said that the "symptoms" of failures in the financial markets had been "those of a failure of confidence. . . Historically, the great failures in banking have led to very, very long periods of recession at best, and I would argue that what we're in at the moment is not a recession but essentially some kind of depression. And it therefore takes something very, very major to get us out of it in the same way as it took something very major to get us into it."

To restore confidence in banking, it was important that attention was paid to "professional standards," Archbishop Welby said. "We cannot go on with banking being essentially something that people drift into in the way that I drifted into being a group treasurer."

Archbishop Welby also called for a "revolution in the aims of the banks". They should not exist to "maximise the returns only for their shareholders. . . They exist for the benefit of the whole of society."

Archbishop Welby also spoke of the need for a culture of virtue in banks. "Good culture requires a ruthless honesty and a deep willingness to be made very uncomfortable indeed through listening to things that one does not want to hear. The creation of virtue is community-based; we correct each other. But good culture and virtuous cultures only develop in communities of trust."

A Downing Street spokesman said on Tuesday that the Prime Minister and the Chancellor "agreed with the Archbishop's analysis that we have a slow and difficult recovery because of the problems in the banking system", but stopped short of describing the situation as a "depression".

BONUSES awarded to executive directors that exceed 100 per cent of their basic salary, should be challenged by the national investing bodies of the Church of England, a new policy published by the Church's Ethical Advisory Group (EIAG), states.

The policy on executive renumeration has been adopted by the investing bodies, which will use it to determine their voting on the renumeration reports of the companies in which they hold shares.

James Featherby, who chairs the EIAG, said on Friday: "Executive directors perform difficult and important roles that require high levels of skill, enterprise and innovation. All staff should be rewarded fairly and executive director roles understandably command good salaries . . . We want to see lower annual bonuses and greater emphasis on rewarding executives who manage ethical, social and environmental issues well and so deliver enduring corporate success over periods of five to seven years."

In creating the guidance, the EIAG drew on theological and biblical studies, and a range of views held in the Church of England today. It notes that: "When material rewards become vastly unequal, it becomes harder for people to perceive the truth of equality before God".

However, it suggests that, in drawing up a Christian ethical policy, there is a need to balance idealism and realism, justice and self-interest: "Of course, Christians will hope that people of ability will take on responsibilities and burdens gladly and sacrificially on behalf of the common good. Yet this ideal is tempered by the awareness that human frailty puts the perfect realisation of Kingdom values beyond our reach and some concessions from the ideal must be made if the fallen world is to embody the godly virtues of peace, justice, sustainability and creativity as well as the ideal of equality."

Differentials in renumeration can be justified "by some reasonable calculus linking higher rewards to greater contribution, skills and responsibility". Those who are lower paid must also be rewarded "fairly".

Analysis cited in the guidance suggests that executive renumeration has become "misaligned with revenues, profits and shareholder returns". Between 2001 and 2011, the median annual bonus potential for a chief executive of a FTSE 100 company increased from 60 per cent of basic salary to 150 per cent. It is rare for a chief executive not to receive a bonus, the report says.

Church investing bodies are advised to "use discretion" when implementing the principles set out in the guidance.

The policy concludes of the culture of renumeration: "Turning the tide will take courage and leadership from both the non-executive directors who determine remuneration and the executive directors who receive it. . . We will work collaboratively and in particular support companies who take risks and model a different way of doing things."

Last year, the secretary of the Church of the EIAG, Edward Mason, said that there was a "systemic problem" of excessive pay for company executives (  News, 3 February, 2012). In 2011, the Commissioners and Pensions Board of the Church of England supported only about 35 per cent of remuneration reports in the UK companies in which they have holdings.