Removing barriers to competition will help create a more diverse banking sector in Scotland, Bank of England executive Andrew Haldane has said in Edinburgh.

However, he admitted this week's central bank move to give banks more headroom to lend may not help small businesses.

Mr Haldane, the bank's financial stability director, told The Herald past criticism of his own outspoken views by incoming governor Mark Carney, who arrives on Monday, were "overplayed". He said: "Mark and I agree on pretty much everything on the regulatory front."

Mr Haldane, who has attacked "King Kong banks", championing social lenders and challengers such as branch-focused Handelsbanken of Sweden, said: "I would like to see a greater number of smaller banks entering the market and we are seeing some, particularly in Scotland. We have lowered the regulatory hurdles to getting authorised for a new bank."

Mr Haldane is believed to have met with start-up private bank Scoban, which plans to launch next year, on his visit.

On the failure of the Co-op Bank's bid to become a more credible challenger, Mr Haldane said: "The downgrade was a surprise to almost everyone, the scale of it. The good news is it hasn't led to a great loss of liquidity."

Mr Haldane told the banking standards commission this year that both Lloyds and RBS would struggle to attract private capital without some restructuring and that "a simpler, somewhat slimmer good bank" may emerge from RBS. On the Chancellor's latest review, he said: "Weighing up the options has some logic to it."

The central banker has talked of a cap on market share for banks as a possible option, but he said the more likely tools were in the lowering of barriers. There had been "massive progress" on bank account switching, though further goals might be portable account numbers and credit registries to store data on small businesses.

Mr Haldane, 46, joined the central bank in 1989 and was head of systemic risk assessment from 2005 to 2007. So did he fail to see the meltdown? "I try to convince myself that wasn't the case....all our literature at the time was full of warnings about what might go wrong. Pre-crisis we did a not bad job in getting the analysis right, what we lacked was any way of making a difference and the tools to effect change."

The bank's latest financial stability report loosens liquidity requirement for banks over four years, freeing up £70 billion of capital for potential lending. Mr Haldane said: "One of the great virtues of having this macro-prudential agency is that it is there to both protect the financial system and to protect the economy, on an equal footing. We are encouraging banks to switch out of low-yield low-risk government securities into somewhat higher-risk loans to the wider economy."

On RBS's insistence it has £20bn of surplus corporate deposits which it cannot lend to business, he said: "Risk-taking doesn't come easily if you are a bank lending or a company spending." SME financing might only improve "if growth picks up – and there are certainly some signs of that".

The report also warns recent market shocks should trigger a 'what if' review of hidden stresses on UK banks.

Mr Haldane commented: "Sometimes a little shock is quite helpful for clearing out frothy positions and alerting risk managers to latent risks....it could end up being a healthy thing."

He added: "We should look within the banking system for how much interest rate risk the banks face in their trading books and their banking books, how much capital they have allocated to those risks, how much stress testing has gone on."

He said banks had exposure to the hedge fund sector, where there had been "a degree of wobble which has been quite revealing". He said the financial system needed to be braced for a "high-impact event, not that it is a high probability", because when prices adjusted abruptly "people start to take defensive actions to protect themselves which can sometimes make a bad situation worse".

Last summer Mr Haldane told central bankers he believed the new Basel 3 regulatory framework was flawed in its complexity, prompting then Canadian central bank governor Mr Carney to say Mr Haldane did not have "a proper understanding of the facts".

Mr Haldane said the valuation by UK banks of an identical asset "could differ by factors of three, four or five, not 10%", as their internal models based on Basel 3 allowed it. "The more complex you get, the greater the number of prospective loopholes there are, it is like the tax code.

"Encouraging work is now being done to make systems more comparable, and the G20 leaders have said we need to fix these problems."

Mr Haldane said Mr Carney's work as chairman of the Basel-based Financial Stability Board was "bang in line with my views on the right direction of travel", adding: "I am massively looking forward to having him as my new boss."