UK - The governor of the Bank of England has sought to make the case for further tranches of quantitative easing (QE) but said any additional stimulus by the central bank would remain focused on gilts despite criticism the measures were depressing yields.

In a speech accompanying chancellor George Osborne’s annual Mansion House address, Mervyn King said many current views of QE were “too pessimistic” and that the measures had helped offset an otherwise “extremely damaging” contraction in monetary supply.

“With signs of a deterioration in the outlook, especially in world markets, the case for a further monetary easing is growing,” he said.

He acknowledged that some in the industry felt that any further monetary easing should take the form of purchases of private sector assets and not gilts.

But he argued that such an idea should be treated with caution, as the Bank of England had no “democratic mandate to put taxpayers’ money at risk”.

His comments are likely a rebuke to the IMF and others within the bank’s Monetary Policy Committee who have argued for greater risk taking, with the IMF recently calling for the £325bn (€401bn) asset repurchase programme to be expanded to corporate bonds.

The pensions industry has been highly critical of QE, arguing that it has artificially inflated defined benefit deficits as equity market losses reduced their asset base.

Meanwhile, the UK government’s White Paper on banking reform - confirming proposals to separate high street banking from financial group’s investment arms - has suggested that the changes will require a splitting of bank pension funds.

In the White Paper, jointly released by the Treasury and the Department for Business, Innovation and Skills yesterday, the government said it recognised current pension regulation could end up saddling a ring-fenced institution with the deficit of a group-wide pension fund.

“This may threaten the economic independence of any ringfenced bank that is jointly and severally liable for contributing towards pension deficits arising elsewhere in the group,” the paper said.

“At the moment, the size of banks’ pension deficits makes a split in the near term problematic. The government therefore believes that banks should be allowed a period of time in order to achieve this separation.”

It suggested that the institutions should have until 2025 to allow for the split, although it welcomed views on the “appropriateness” of the date.

However, the White Paper was careful not to interfere with any funding proposals that may already be agreed between the companies, trustees and the Pensions Regulator.

“The provision of additional time to achieve this separation would not be intended to increase the time allowed for banks to fulfil their recovery plan agreements with pension trustees,” it said.

Most UK banks have large legacy pension funds, with many seeing their market cap dwarfed by pension liabilities.

Royal Bank of Scotland recently announced “essential” changes to its DB scheme, implemented to offset the impact of rising longevity among its membership.