Giving evidence to the Treasury Select Committee on Tuesday, Lord Turner said that while the direct exposure of British banks to Italy was not large, the country's financial crisis, if it got worse, would be more damaging to the UK than those of Greece, Ireland and Portugal."Italy is the most concerning. That is the most important thing for us to focus on," he said.
The Italian government is currently looking at ways to cut the country's public sector debt of close to €2 trillion (£1.8bn) as well as sales of state assets.
Speaking on Tuesday, a senior Italian banker told The Telegraph that he thought it was "highly unlikely" Italy's problems would ever get as bad as those in Greece, where the government on Monday called for a referendum to vote on a multi-billion euro bailout package.
Lord Turner's comments will add to fears about the strength of the British financial system to stand up to a new crisis.
Speaking at the same hearing, he told MPs that investors should no longer think of bank shares as "high return" investments and that the days of large payouts were over.
"An investment in banks should not be a high-risk, high-return investment. The banks have adjusted this but not enough," he said.
On Monday, Robert Jenkins, a former City banker and a member of the Bank of England's Financial Policy Committee, said that banks should stop using return on equity to measure their performance as it led them to seek high returns without accounting for risk.
The Telegraph
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