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Bank of England governor warns Labour against watering down financial rules - YAHOO FINANCE
Andrew Bailey defends current system separating retail and investment banking as chancellor Rachel Reeves calls for abandoning 'excessive caution'
Bank of England governor Andrew Bailey has warned the government that dismantling the UK’s banking ring-fencing regime “would not be sensible”, amid the UK government's push to "regulate for growth".
Speaking to MPs on the Treasury Committee following chancellor Rachel Reeves’ Mansion House speech last week, Bailey defended the current system, which separates retail and investment banking operations. The regime was introduced in the wake of the 2008 financial crisis to reduce systemic risk and protect consumers in the event of bank failures.
“I do think the ring-fencing regime is an important part of the structure of the banking system,” Bailey told the committee. “It makes the resolution of banks if they’re in trouble much easier, and it benefits, particularly in terms of the UK, consumers, business and households.”
While the chancellor has argued that outdated regulation is hampering growth, Bailey pushed back against the suggestion that financial oversight could be relaxed.
“I’m sure there are things that can be improved and we will work constructively to get through that process,” he said. “I think it has established itself as part of the system and to me it would not be sensible to take it away at this point.”
Read more: Reeves calls on regulators to loosen rules in push to spur investment
Reeves, addressing banking leaders at Mansion House, described financial red tape as a “boot on the neck of businesses” and called for UK regulators to abandon what she termed “excessive caution”. The remarks were part of a broader bid to accelerate the UK’s economic by having financial watchdogs "boldly regulate for growth... in the service of prosperity across our country”.
Bailey, however, stressed that financial stability should not be traded off against growth ambitions. “There isn’t a trade off between financial stability and growth,” he said, underscoring the central bank’s commitment to maintaining the resilience of the UK’s financial system.
The governor also addressed suggestions that the regulatory environment may be outdated. “I can understand when I hear people say ‘the financial crisis is now way in the past, we’ve got passed that, that’s all solved, that’s all out of the way, move on’,” he said. “For those of us who were veterans of sorting the problems of that out, I think we probably all feel in some ways were in different parts of the world, erm... no.”
“Yes of course the world moves on,” he added. “That was the experience of losing financial stability. We had a very serious recession in this country after that. So I do react to people who say that because, I’m sorry, this is the fundamental point about why financial stability is important.”
He also talked about the quiet effectiveness of robust regulation: “Success in financial stability is when nothing happens. The fact we’ve had market volatility this year and we haven’t had a financial stability problem and we’re not worrying about banks failing, we’re not the market, is of course a success. It’s not always easy to point to it and say, look, this is good news. But the UK banking system is very resilient.”
When asked directly about Reeves’ “boot on the neck” metaphor, Bailey declined to repeat the language. “I don't use those terms. Let me say that ... it's not a term I use,” he said, before adding: “We can't compromise on basic financial stability. That would be my overall message.”
Separately, the governor said that the rise in UK government borrowing costs was not out of step with international trends, downplaying concerns that the UK was facing uniquely adverse market conditions.
“We have seen steepening of yield curves going on now,” Bailey told lawmakers. “I think the important thing to say is that is a global phenomenon. It’s not in any sense unique to this country. In fact, the pattern in this country is not in any sense out of line with what we’ve seen in other markets, and we’ve seen steeper increases in some other markets.”
According to Bailey, the pressure on borrowing costs is being driven by global concerns, including shifts in trade policy and fiscal uncertainty. He pointed to recent events in the United States, where president Donald Trump has imposed tariffs on a wide range of imported goods and secured tax cuts expected to add significantly to the US federal deficit.
The Bank of England governor also cast doubt on whether the UK’s central bank will introduce a digital currency, having worked on the project for several years.
Bailey told MPs that he would need “a lot of convincing” to push through the plan, if existing work to push digital technology into the commercial bank payment systems is a success.
