Image: Bank of England Image: Bank of England

The deputy governor of the Bank of England has said he wants banks to be able to fail without impacting on the economy.

Following the second annual stress tests, which are designed to test banks' ability to cope with another economic downturn, Sir John Cunliffe said the banking industry must be able to 'go wrong' but in an "orderly way".

Speaking to the BBC, Sir John said: "Banks need to be able to go wrong and have the resources to deal with that......the lesson from the financial crisis is it's not just about individual banks, it was what happened when the system as a whole failed right across the banking system, given the interconnections between them."

He added: "So while I want to see a world in which banks can fail, I also want to avoid the financial system as a whole suffering the instability and breakdown that we saw 7 or 8 years ago."

The deputy governor also warned that the Bank of England may be forced to take action on the UK's buy-to-let market. That aspect of the housing market is growing faster than any other, especially with a sharp rise in the number of people taking out buy-t0-let mortgages.

"I think you have to ask questions about are there risks here....and if necessary you have to take action to curtail those risks," Sir John said.