Darling to reform financial regulation

Chancellor Alistair Darling (L) walks with U.S. Treasury Secretary Timothy Geithner at the G8 finance ministers' meeting in Lecce June 13, 2009.

LONDON (Reuters) - Regulators need to think about the financial system as a whole and bank boards need to have the right skills and not just chase easy profits, Chancellor Alistair Darling will say on Wednesday.

In his annual Mansion House address to the City of London, Darling will say banks cannot go on as usual and that everyone has to learn the lessons of the last two years that have seen the global financial system to its knees.

"Anyone who thinks that we can carry on as if nothing has happened should think again. In every country we are paying a huge price for this crisis. Not just the financial cost but also a profound social and human cost," he will say, according to extracts released by the Treasury on Tuesday.

Darling will publish a detailed paper on financial regulation shortly and will set out several areas of reform in his speech including more transparency, stronger national and international regulation, better means of dealing with failures, and a greater focus on system-wide risks.

He will say bank boards have to be filled with people with the right experience and skills and that "their focus must be on long-term wealth creation, not short-term profits."

Darling will call for tighter regulation not just in Britain but also around the world, arguing all institutions with the potential to destabilise the financial system should be regulated, whether they are banks or insurers.

But he will also make clear that Britain will resist calls for a pan-European regulator to take over from national supervision -- an issue that is likely to dominate this week's EU leaders' summit.

Instead, he will open up the debate on macro-prudential regulation -- where the authorities look not just at one bank but what the aggregate can mean for the financial system.

"This crisis has taught us that it is not enough to pass an individual firm as healthy. Regulators and central banks need to look more carefully at the system as a whole," he will say.

"Institutions are important, so are the tools to do them right. But to concentrate only on institutions is to miss the point. At its heart, this is about judgements -- making the right call at the right time. Whatever the system is, judgements will always matter.

(Editing by David Milliken)