Banks' time for remorse is not over, says Mark Carney "I think their [bankers"] argument for why they should be paid so much looked a bit thin after the banking crash and has remained thin," said the Chancellor in evidence to the Commission on Banking Standards. But Mr Carney said that he did not think pay reform could prevent new scandals such as Libor-rigging and argued banks had become too fixated on money as the measure of staff performance. "When bankers become detached from end-users, their only reward is money, which is generally insufficient to guide socially useful behaviour," he said. The speech also contained a warning about the implications of the breakdown in trust between banks, depositors, customers, investors and regulators, that Mr Carney said could end up leading to a more fragmented global financial system that would lead to slower economic growth. A global system that is nationally fragmented will lead to less efficient intermediation of savings and a deep misallocation of capital. It could reverse the process of global economic integration that has supported growth and widespread poverty reduction over the last two decades," he said. Mr Osborne said he had seen a massive breakdown in trust between banks and their smaller business customers, who he admitted were now among the main critics of the industry. "What is striking is that often the hostility is felt greatest among the rest of the business community," he said. Addressing the weakness of bank balance sheets, the Chancellor said the volume of bad debts on the balance sheets of the big banks meant they had been "reluctant" to recognise losses and that "credit allocation has not been as efficient as it might otherwise have been." John Kingman, a senior Treasury official, told the Commission that banks had been told it was "not acceptable" to meet balance sheet reduction targets by reducing their exposure to British businesses, adding that lenders would be issuing "material announcements" in the near future about how they would meet the stricter capital requirements being imposed on them. Asked about Royal Bank of Scotland's restructuring, Mr Osborne said he expected the bank to give more details on how it will be further reducing the size of its investment banking business when it reports its full-year results on Thursday. However, the Chancellor hit back at suggestions the Government could fully nationalise and break up RBS if its management does not go far enough, saying it was "unrealistic to think that it [the restructuring of the bank] could be done a huge amount more quickly." "We have insisted that they do change their business model, that they do shrink their investment bank... we will make sure it becomes a UK-focused retail and corporate bank," he said.